-- Global financial markets already rattled by elevated interest rates now face a fresh dose of geopolitical uncertainty following Hamas’s surprise attack on Israel.Saturday’s strike and Israel’s subsequent declaration of war threaten to unnerve markets, while a jump in crude oil from the start of Asian trade adds to concern about elevated inflation.
Bond traders will need to quickly determine if the clash is a reason to rush for the safety of the dollar, shunning higher yielding-debt, or to fear yet another bout of inflation. Treasury futures climbed from the start of Monday trade, while cash Treasuries are shut for a US holiday. “It is evident that any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive with negative inflationary effects for the West and would mean higher rates for longer and falling stock markets if the above caused a recession.”“I don’t expect the situation to have a meaningful impact on markets. This is a long standing terrible situation but other than some short term volatility it shouldn’t have a big impact.
“The only asset class one can look to for a possible reaction is oil but I don’t expect a big surge in prices given there is no impact on supply at the moment. One can’t compare the situation for oil with 1973. If the conflict was to take another dimension if for instance Israel were to directly hit Iranian infrastructure, it would be a whole different story but at the moment it is too early.
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