European Stock Indexes Fall as Oil Prices Pull Back Amid Israel-Hamas War
European stock indexes experienced a decline on Monday, while oil prices eased after recent gains. The cautious market is closely monitoring the situation in the Israel-Hamas conflict, as escalations could have significant financial consequences.
Israeli Prime Minister Benjamin Netanyahu declared his intention to “demolish Hamas” ahead of the Israeli troops’ movement into the Gaza Strip. This action comes in response to the deadly rampage by Hamas militants on October 7, which resulted in the deaths of 1,300 people, marking the worst attack on civilians in Israel’s history.
Last week, oil prices surged as investors factored in the possibility of further escalation in the world’s leading oil-producing region. Meanwhile, traders turned to safe-haven assets, leading to an increase in U.S. Treasuries and gold prices.
Market participants are eagerly observing to see if the conflict expands to involve other countries, which would likely drive oil prices even higher and deal another blow to the global economy. Of particular concern is Iran, which announced on Sunday that its armed forces would refrain from military engagement with Israel as long as Israel refrains from attacking Iran, its interests, or its citizens.
At 0823 GMT, the MSCI World Equity Index declined by 0.2% for the day. European stock indexes followed suit, with the STOXX 600 down 0.2% and London’s FTSE 100 down 0.1%.
Oil prices, which had previously surged, experienced a decline. Brent futures dropped by 0.65% or 59 cents, standing at $90.3 per barrel. U.S. West Texas Intermediate (WTI) crude fell by 0.7% or 59 cents, reaching $87.06 a barrel.
Fiona Cincotta, senior markets analyst at City Index, noted that the market would look for signs of de-escalation to improve the prevailing mood. Conversely, any indication of involvement by oil-rich nations would serve as a catalyst for stock market declines. She emphasized that further comments from Iran would be particularly significant.
Top U.S. officials warned on Sunday that the conflict could potentially escalate into a broader conflict across the Middle East. U.S. Secretary of State Antony Blinken has been traveling to various countries, including Israel, Qatar, Jordan, Bahrain, the United Arab Emirates, Saudi Arabia, and Egypt, in an attempt to limit the spread of the conflict.
Prior to the Hamas attack, market sentiment was primarily driven by global economic factors and the belief that the U.S. Federal Reserve would maintain higher interest rates for an extended period. However, geopolitical concerns have now taken center stage, overshadowing this narrative alongside corporate earnings reports for the week, according to Cincotta.
Benchmark 10-year U.S. Treasury yields slightly increased to 4.6872% after declining by more than 8 basis points on Friday due to the demand for the safety of bonds.
In Europe, government bond yields rose as European Central Bank officials expressed concerns about inflation. The German 10-year yield witnessed a 4 basis point increase, reaching 2.779%.
Kyle Rodda, senior financial market analyst at Capital.com, stated that gold and oil prices are the most sensitive indicators of the conflict’s risks. Nevertheless, he acknowledged the difficulty in identifying potential flashpoints and accurately predicting scenarios related to the Gaza conflict.
More detail via Investing.com South Africa here… ( Image via Investing.com South Africa )