- So far, Wall Street has had a muted reaction to the Iranian attack on Israel.
- U.S. stock futures rose in pre-market trading on Monday, while benchmark oil prices fell.
- It’s another reminder that traders are more concerned about interest rates than geopolitical tensions.
The market once again reiterated its indifference to geopolitics on Monday, with traders appearing to ignore the potential impact of Iranian strikes on Israel.
U.S. stock futures climbed higher in premarket trading to pare some of their losses after a tough Friday session, while benchmark Brent and West Texas Intermediate prices fell despite the threat of supply disruptions in the Middle East.
Meanwhile, gold and the US dollar index – which tracks the greenback’s strength against a basket of six other currencies – started the week in the red, a sign that investors are avoiding so-called “safe haven” assets. » despite the upside potential. increased volatility. Yields on 10-year US Treasury bonds remained stable.
Signs that the conflict between the two countries will not escalate further have calmed market nerves, Kathleen Brooks, director of research at XTB, said Monday. Iran said in a statement that “the matter can be considered settled”, while Joe Biden signaled that the United States would not participate in any counterattack against Tehran.
“There is a sense that this Iranian attack could have been much worse. Instead, Iran stopped this attack and declared that it considered the matter closed,” Brooks wrote in a memo from research. “From a geopolitical perspective, the focus is now on the Israeli response, but the limited impact of the Iranian attack and the G7’s call for restraint could limit the impact on financial markets in the short term. term.”
“The first reaction seems to be relief,” she added. “The dollar started the week quite tepidly and US bond yields are slightly higher, suggesting there has been no flight to safe havens.”
Anyone who has been following the markets for two years will not be surprised by the discreet reaction of traders to the latest tensions in the Middle East.
While big Wall Street names, including JPMorgan boss Jamie Dimon and billionaire Bridgewater founder Ray Dalio, have repeatedly warned of a global crisis, the market has tended to react to developments regarding Israel by rising shoulders.
Since the first Hamas attack on October 7, the S&P 500 index has climbed 19% – while oil benchmarks have risen about $7 a barrel, much smaller gains than would have been expected. ‘wait in a context of conflict near several of the world’s largest oil companies. producers.
Neal Shearing, chief economist at Capital Economics Group, said in a research note Sunday that Iranian drone strikes are unlikely to have an impact on stocks unless they cause a massive rise in commodity prices. crude that would cause the Federal Reserve to delay its first expected cut in interest rates.
“The main risks for the global economy are whether this now escalates into a wider regional conflict and what the response will be in energy markets,” he said.
“As things stand, we sense that events in the Middle East will strengthen the Fed’s case for taking a more cautious approach to rate cuts, but they won’t stop it from cutting completely its rates,” Shearing added, noting that the OPEC+ cartel’s choice to increase its production levels could offset any price increases caused by the Iranian attack.
It reminds us that the key person who will determine the direction of U.S. actions this year is not Vladimir Putin, Xi Jinping or Iranian Supreme Leader Ali Khamenei, but central bank Chairman Jerome Powell.
businessinsider
