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The escalating conflict between Israel and Iran entered its fourth day on Monday, with both countries exchanging more attacks amid pleas from officials around the world to scale back hostilities. European and U.S. leaders spoke with Israeli Prime Minister Benjamin Netanyahu on Sunday in an effort to de-escalate tensions. Stock futures rebounded slightly early Monday as the spike in oil prices due to the conflict eased momentarily.
However, stock gains were muted as investors remained concerned about the rising geopolitical risk to the global economy.
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Dow futures jumped 157 points, or 0.4%, while S&P 500 and Nasdaq 100 futures both gained 0.4% and 0.5%, respectively. Oil prices initially surged following Israel’s attack on Iran on Friday, increasing the severity of the conflict in the region.
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West Texas Intermediate crude futures rose 0.47% to $72.64 a barrel after trading above $77 earlier in the overnight session. The attacks prompted a sell-off in stocks on Friday, with the Dow falling more than 700 points that session. All three major indexes dropped more than 1%, pulling them into red territory for the week.
Iran has said it is considering shutting down the Strait of Hormuz, a key route for the global oil market.
Escalating conflict impacts global markets
Israel claimed on Monday to have achieved “aerial superiority” over Iran, according to a military spokesperson.
Ed Mills, Raymond James’ Washington policy analyst, said, “The strikes represent the largest attack on Iranian territory since the 1980s. The risks of regional escalation are heightened; the extent to which hostilities could spread is likely contingent on the extent of U.S./Russian impacts/involvement in the coming weeks and days.”
Investors will be monitoring manufacturing survey data due Monday morning, which comes ahead of the Federal Reserve’s interest rate decision on Wednesday. Fed funds futures are pricing in a nearly 97% likelihood of the central bank keeping rates unchanged.
Asia-Pacific markets rose Monday as investors assessed the escalating tensions and parsed a slew of data from China. China’s retail sales jumped 6.4% from the previous year, while industrial output growth slowed to 5.8% year on year. Japan’s benchmark Nikkei 225 gained 0.59% to close at 30,963.68, while South Korea’s Kospi index surged 1.8% to close at 2,946.66.
The bond market remained jittery as investors grappled with the uncertain economic outlook. Although the U.S. economy reported steady hiring, the potential for prolonged conflict adds a layer of uncertainty that weighs heavily on market sentiment. Investors will continue to watch for developments in the Middle East conflict and their potential impacts on global supply chains and energy prices.
