Middle East conflict has hardly unsettled markets so far
Published: Monday, Apr 15th 2024, 12:21
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Iran's direct attack on Israel is keeping the financial markets busy at the start of the week. So far, however, investors have not let this unsettle them. However, this crisis is not yet over and experts are warning of the serious consequences of further escalation.
At the weekend, Iran fired more than 300 drones and missiles at Israel, making good on its threat of a retaliatory strike. However, most of them were intercepted, so that their damage was limited.
For the financial markets, such events usually mean uncertainty. And investors don't like that. However, the stock markets in Europe have (still) barely reacted to the escalation of the crisis. The markets therefore do not appear to be expecting a further escalation.
The leading Swiss index SMI even rose by 0.38% on Monday morning and the German Dax gained almost 1%. The SMI volatility index also shows that investors are hardly worried so far. The stock market's fear barometer even fell slightly (-0.33%) and remains at a low level of 12.6 points. The impact on gold, which is considered a safe haven, and the Swiss franc has so far been very limited, while US equity futures are also signaling a firmer opening on the New York Stock Exchange.
Many dangers
Investors were already bracing themselves for a possible military strike last week following Iran's threats, according to the market. In addition, DZ Bank comments that it is hopeful that Iran is not planning any further attacks according to its own statements and that neither side seems to have any interest in an open war. However, there is a considerable risk that the USA could be dragged into a war with Iran against its will, according to Liberum.
How things develop in the coming days or weeks will depend on Israel's reaction, write analysts at Zürcher Kantonalbank (ZKB). An escalation of the crisis in the Middle East would cause new volatility on the markets. This is because investors are already very unsettled by stubborn inflation and the prospect of higher interest rates in the longer term.
Oil price in our sights
If there are supply problems through the Strait of Hormuz, which is controlled by Iran and through which 20 to 30 percent of global oil supplies pass, the market fears that the oil price could rise to over 100 US dollars per barrel. A barrel currently costs a good 90 dollars.
Such a rise in oil prices could weigh on the already fragile economy. It could also trigger a further acceleration in inflation and force central banks to postpone interest rate cuts, according to a commentary by Liberum.
Gold even higher?
If the conflict intensifies, the flight to safe investments such as government bonds, gold and the dollar could intensify, according to ZKB. The price of gold, which reached a new record high of 2431 dollars last Friday, may not have reached the end of the line yet, according to one trader.
ZKB fears that this could also trigger a correction in the price gains of recent months on the stock markets. The extent of this is likely to depend on further political developments.
Opportunities for reassurance?
However, there are also signs that the situation could calm down again. Iran's announcement that the attack on Israel "can be considered complete" is positive, say observers.
In addition, US President Joe Biden informed Israeli Prime Minister Benjamin Netanyahu that the USA would not support an Israeli counter-attack against Iran.
"If Israel refrains from an immediate counter-attack, which there are some indications of, we do not expect a game changer for the financial markets from this side," says asset manager Bantleon.
However, it is currently still uncertain whether the stock market adage that "political stock markets have short legs" will also apply this time.
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