The escalation of the conflict in the Middle East between Israel and Gaza is fueling investors’ fears of turmoil in the financial markets, especially with the approaching Federal Reserve meeting, key US data and the business results of major companies.
Israeli Prime Minister Benjamin Netanyahu said on Saturday that Israeli forces had begun the second phase of the three-week-long Gaza war against the Palestinian Islamic Resistance Movement (Hamas).
Netanyahu added in a press conference, “This is the second phase of the war, whose goals are clear, which is to destroy Hamas’ military capabilities and return the hostages.”
The impact of the Gaza-Israel war on gold and oil prices
Investors have become increasingly concerned about the expansion of the conflict in recent days after the United States supplied the Middle East with more military equipment, at a time when Israel continues its bombing of Gaza and other places in Lebanon and Syria.
The United States is Israel’s largest military supporter, providing it with defense aid worth $3.8 billion annually.
“The situation in Israel is causing a lot of concern,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.
On Friday, the settlement of Brent crude futures rose by 2.9 percent to $90.48 per barrel due to fears that the conflict may disrupt crude supplies. US West Texas Intermediate crude futures also increased by $2.14, or 2.6 percent, to $85.35 per barrel.
The spot price of gold, a safe haven for anxious investors, rose above $2,000 an ounce for the first time since mid-May.
In a note on Friday, analysts at Capital Economics said the oil market’s response to the conflict has been “quiet” so far.
They added, “However, any indication of the involvement of other countries in the region in the conflict would lead to a sharp rise in oil prices.”
Concerns are increasing that the conflict in the Gaza Strip may extend and disrupt supplies from Iran, one of the world’s largest oil producers, which faces accusations from the United States that it supports Hamas.
A broader war could also affect shipments from Saudi Arabia, the world’s largest oil exporter, and other major producers in the Gulf.
Analysts from Goldman Sachs kept their expectations for the price of Brent crude in the first quarter of 2024 at $95 per barrel, but added that the decline in Iranian exports may push basic prices to rise by about five percent.
Treasury bond yields
Peter Cardillo, chief market economist at Spartan Capital Securities, said that if escalation of the conflict leads the United States to increase war-related spending, which increases the deficit, Treasury yields could rise beyond the highest levels in 16 years that they reached. to it already.
Some investors also expect that the expansion of the conflict between Israel and Gaza will lead to buying Treasury bonds as a safe haven, which may ease pressure on stocks and other assets.
The Standard & Poor’s 500 index has fallen by more than 10 percent since late July, when it reached its highest levels for 2023, although the index has risen by more than 7 percent since the beginning of the year so far.
“Until now, US government bonds have not performed their usual safe-haven function,” UBS Global Wealth Management said in a note on Friday.
“However, an escalation of the conflict is likely to shift attention away from monetary policy concerns and boost safe-haven demand for Treasuries.”
She added that gold and oil could also provide hedges against near-term volatility.
The Federal Reserve is scheduled to deliver its latest monetary policy statement next Wednesday, with interest rates expected to remain where they are after the last increase in July.
Fitch Solutions expects oil prices to fluctuate between $80 and $95 in late 2023 and early 2024, with short- and long-term US bond yields rising, driven by growth, inflation, and the US Federal Reserve’s interest rate trends.
It also expected gold to trade near its highest historical levels ever at $2,075 per ounce if this scenario came true.
2023-10-29 13:33:46
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