Stocks retreat amid Gaza risks as oil hovers above $90

Crude oil prices remained steady above $90 a barrel on Monday, while global equities experienced a decline and the safe-haven dollar firmed up. The market sentiment was influenced by growing concerns over escalating violence in Gaza and the possibility of the conflict spreading beyond Israel and Hamas to the wider region.

Israel’s shekel dropped to its lowest level in more than eight years after Prime Minister Benjamin Netanyahu vowed to retaliate against Hamas for the Oct. 7 attack that claimed the lives of 1,300 people, marking one of the deadliest attacks on civilians in Israel’s history. U.S. Secretary of State Antony Blinken arrived in the region in an effort to prevent further escalation, and Netanyahu agreed to lift a blockade of water supplies to parts of southern Gaza following a conversation with U.S. President Joe Biden.

Brent crude futures briefly hit a recent high of $91.20 before stabilizing just below $91. This came after a notable 5.7% surge on Friday. In the stock market, Japan’s Nikkei share average fell by up to 2% while Hong Kong’s Hang Seng slipped 0.43% and mainland blue chips dropped 0.69%. Australia’s S&P/ASX 200 index lost 0.35%, and New Zealand’s equity benchmark slid about 1%. On Friday, the pan-European STOXX 600 index lost nearly 1%, and New York’s S&P 500 declined by 0.5%, although U.S. stock futures were pointing 0.2% higher on Monday.

While the situation remains dynamic, pockets of positive news flow have been observed. For instance, the resumption of water supplies was seen as a positive development. Risk and energy markets are keeping a close eye on headlines and actions from Iranian officials, who have stated their duty to come to the aid of the Palestinians.

Currency markets retraced some of their movements from the end of the previous week, with the U.S. dollar index slightly easing to 106.51 from a high of 106.79 on Friday. The euro rose 0.14% to $1.05255, and the yen remained relatively stable at 149.445 per dollar. Israel’s shekel initially weakened to 3.9900 per dollar, marking its lowest level since April 2015, but it has since recovered about 0.3% to 3.9650.

Benchmark 10-year U.S. Treasury yields edged up to 4.6581% after experiencing a decline of more than 8 basis points on Friday due to demand for the safety of bonds. Gold prices, which surged by $63 on Friday, pared back about $12 and retreated 0.6% to $1,919.29 per ounce. The conflict in Gaza poses significant risks to gold and oil prices, which are considered sensitive indicators. However, it remains challenging to identify potential flashpoints and anticipate various scenarios.

In conclusion, the global financial markets are grappling with the escalating violence in Gaza and its potential repercussions. The impact on oil prices, equities, and currency markets is being closely watched as investors seek to navigate the uncertainty surrounding the conflict.