Article content

(Bloomberg) — Oil jumped toward the highest since early this month as sentiment deteriorated in the markets after the shock attacks by Hamas within Israel over the weekend that left hundreds dead.

West Texas Intermediate rose more than 4% to over $86-a-barrel Monday, days after crude posted its biggest weekly drop since March. The fallout in markets will likely be determined by whether conflict spreads to the rest of the Middle East region, with oil traders also shifting focus to Iran, which is both a major oil producer and supporter of Hamas. 

Article content

Article content

For the conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in supply or transport, Commonwealth Bank of Australia analyst Vivek Dhar said in a note. If not — and as history has shown — the price reaction tends to be temporary. Nevertheless, should Western countries now officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks.

Gold rose and the dollar advanced on haven demand, with the greenback seeing gains versus the euro and pound, while riskier currencies slipped. The yen — another favored refuge for investors — strengthened. Meanwhile, earlier gains in Australian and New Zealand bonds have since been erased.

The fallout from the Israel attacks reverberated through Middle East markets on Sunday, sending stocks sliding and setting the tone for what’s likely to be a volatile start to the week. Major equities gauges in the region fell, led by a drop on Israel’s benchmark TA-35 stock index, which posted its biggest loss in more than three years, sliding 6.5%.

Article content

Article content

Stocks traded higher in Australia, while futures contracts for US stocks extended losses. The S&P 500 had advanced 1.2% Friday, snapping a four-week losing streak. The Nasdaq 100 jumped 1.7% with large-cap tech names, including Microsoft Corp., Apple Inc. and Nvidia Corp., powering the index higher. 

South Korean and Japanese markets are shut for a holiday and there is no cash trading of Treasuries. China’s mainland markets are set to reopen after the Golden Week holidays while Hong Kong morning trading will be halted due to a typhoon.

Inflation Worries

Rising oil prices could add to already high global inflationary pressures with investors still debating the odds of another rise in interest rates by the Federal Reserve this year.

“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,” said Guillermo Santos, head of strategy at Spanish private banking firm iCapital.

Yields on 10-year and 30-year Treasuries calmed on Friday after touching 2007 highs near 4.9% and 5.1%, respectively as global bonds sold off for a fifth straight week. An unexpected surge in hiring left swaps traders pricing in a roughly 50/50 chance of a rate hike by December. 

Article content

The US nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — more than double economists’ estimates. The unemployment rate held steady at 3.8%, data from the Bureau of Labor Statistics showed Friday.

The bond selloff has been hammering risk assets from stocks to corporate credit on concerns that central banks will keep interest rates elevated longer than expected.

Mohamed El-Erian, the chief economic adviser at Allianz SE, sees more pain ahead. “Something is likely to break,” he said on Bloomberg Television. The Bloomberg Opinion columnist said Friday’s job numbers were consistent with his call for a possible recession.

Key events this week:

Article content

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

Article content