By Oluwatosin Maliki
The dollar and yen currency jumps on Monday after Hamas launched an attack against Israel during the weekend, igniting fresh concerns in several countries over the tensions in the Middle East.
The crisis further stirred concerns about supplies of crude oil from the region at the time when supply worries are already high due to Saudi Arabia and Russia’s output cuts.
Also, It has sparked fears over the impact on inflation, with energy costs a key driver of spiking prices, posing a challenge to the central banks as they try to ease up on interest rate hikes to avoid recessions.
The Israel-Hamas attack and Israel’s declaration of war in response to Hamas, have left more than 1,000 people dead. Consequently, the war has raised concerns that the continuous stretch of the conflict could draw in the United States and Iran.
ANZ Group’s Brian Martin and Daniel Hynes said, “Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia”.
“Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil-price consequences. But higher volatility can be expected.”
Both main contracts surged more than five percent in early Asian business before easing back as the day wore on.
SPI Asset Management’s Stephen Innes warned, “Historical analysis suggests that oil prices tend to experience sustained gains after the Middle East crises”.
“Meanwhile, stocks tend to eventually recover and trend higher after an initial period of volatility. Safe-haven assets like gold and Treasurys, which initially see gains during such crises, tend to fade from their initial price spikes as the situation stabilises”.
“But with Middle East analysts considering this to be a pivotal moment for Israel, the view looks incendiary in any current scenario.”
In addition, investors wisely made a move by pushing into the safety of the dollar, which was up against the pound and euro, as well as the Australian and New Zealand dollars.
Similarly, the yen currency, considered to be one of the safest currencies, also strengthened against the greenback, although it still remains locked around 11-month lows.
Another key haven resource, gold, gained around one percent.
Equity markets were mixed, with Shanghai dropping on its first day back after a week-long holiday as investors continue to panic over the fluctuating Chinese economy.
There were also losses in Mumbai, Singapore, Manila, Bangkok and Wellington, though Hong Kong rose in shortened trade, having been closed in the morning owing to a typhoon.
Sydney and Jakarta currency acquired gains. Tokyo was closed for a holiday.
Also, London edged up while Paris and Frankfurt were lower.
The performance came despite a rally on Wall Street, where traders welcomed data showing a forecast-busting jump in new jobs but wage growth slowing.
The “Goldilocks” figures, neither too strong nor too weak lifted the confidence of the world’s top economy that they can avoid a recession even as the Federal Reserve keeps rates elevated.
Even though there are still worries that the bank will hike one more time before the end of the year, with has made officials determined to bring inflation to heel and keep it at their two percent target.