In early trading sessions across Asia, investors are proceeding with caution due to escalating tensions following a significant attack by Iran on Israel over the weekend.
The U.S. dollar held steady against major currencies, and U.S. stock futures saw a slight increase after the S&P 500 experienced its most significant drop since January on Friday, driven by a rush towards safer investments. Meanwhile, oil prices dipped slightly, gold prices increased, and futures for Asian stocks indicated potential early losses. Yields on Australian 10-year bonds also declined at the opening.
Amid ongoing concerns about persistent inflation and the possibility of enduring high interest rates, the intensification of the Middle East crisis introduces new uncertainties into the market. Experts suggest that oil prices might exceed $100 a barrel, and predict a shift towards Treasuries, gold, and the U.S. dollar, coupled with further declines in stock markets.
Despite Iran's statement that the conflict could be considered over, the market is on edge, waiting to see if the situation escalates into a broader regional conflict. However, some of the tension was alleviated following reports that U.S. President Joe Biden advised Israeli Prime Minister Benjamin Netanyahu against a counterattack on Iran.
Namik Immelbäck, a leading strategist, suggests that the market might stabilize as Iran and Israel pull back from a full-blown conflict. However, he anticipates a short-term reduction in positions by trend-following quantitative strategies, which could amplify the usual flight to safety.
Following the attacks, Bitcoin's value plummeted nearly 9% before recovering to trade around the $65,000 mark. The stock markets in Saudi Arabia and Qatar experienced minor losses in trading volumes on Sunday, while Israel's equity benchmark saw fluctuations before ending the day with slight gains.
Investors are closely monitoring oil prices as a key indicator of market direction amidst the possibility of ongoing strikes and counter-strikes. Brent crude has already seen a nearly 20% increase this year, last trading around $90 a barrel.
In the bond market, the potential impact of rising energy costs on inflation is a concern. While Treasury bonds usually benefit during uncertain times, the prospect of sustained high interest rates could restrain their performance. Futures for Treasury bonds opened lower.
