[1/2]The graphic of the German stock index DAX is shown on the Frankfurt Stock Exchange on October 13, 2023. REUTERS/Staff/File Photo Acquire License Rights
LONDON, Oct 16 (Reuters) – European stock indexes fell on Monday but oil prices retreated from recent gains as cautious markets awaited signs of escalation that could determine the financial fallout from the Israel-Hamas war.
Israeli Prime Minister Benjamin Netanyahu vowed on Sunday to “crush” Hamas as his troops prepared to enter the Gaza Strip in pursuit of Hamas militants, whose deadly rampage on Oct. 7 killed 1,300 people, the worst Attack on civilians in Israel’s history.
Oil prices rose last week as investors priced in the possibility of an escalation in the world’s largest oil-producing region, while U.S. Treasury and gold prices rose as traders bought safe-haven assets.
Traders are waiting to see whether the conflict extends to other countries, which would further drive up oil prices and deal a new blow to the global economy. They have a particular eye on Iran, which said on Sunday that its forces would not cooperate militarily with Israel as long as Israel did not attack it, its interests or its citizens.
At 0823 GMT, the MSCI World Equity Index was down 0.2% on the day (.MIWD00000PUS). Europe’s stock indices were in the red: the STOXX 600 lost 0.2% (.STOXX) and London’s FTSE 100 lost 0.1% (.FTSE).
Oil prices fell after rising sharply last week. Brent futures were last down 59 cents, or 0.65%, at $90.3 a barrel. U.S. West Texas Intermediate (WTI) crude fell 0.7%, or 59 cents, to $87.06 a barrel.
“What the market is looking for to improve sentiment would be any kind of de-escalation… and on the other hand, any feeling that the oil-rich countries will be involved would be a catalyst to drive stocks lower,” said Fiona Cincotta , senior market analyst at City Index.
“Any further comments from Iran will be the focus.”
Senior U.S. officials warned Sunday that the war could escalate into a larger conflict across the Middle East. US Secretary of State Antony Blinken arrived in Israel on Thursday and was also in Qatar, Jordan, Bahrain, the United Arab Emirates, Saudi Arabia and Egypt to contain the spread of the conflict.
Before the Hamas attack, market sentiment had been driven by the global economy and the idea that the Federal Reserve wanted to keep interest rates higher for longer. That narrative, along with corporate earnings this week, has become secondary to geopolitical concerns, Cincotta said.
Benchmark 10-year U.S. Treasury yields rose slightly to 4.6872% after falling more than 8 basis points on Friday on demand for the safety of bonds.
European government bond yields rose after European Central Bank officials reiterated concerns about inflation. The 10-year German government bond yield rose 4 basis points to 2.779%.
The U.S. dollar index fell slightly, losing 0.1% on the day at 106.470. The euro rose 0.2% to $1.0533.
The Israeli shekel fell to a more than eight-year low.
Gold pared part of Friday’s $63 gain, falling 1% to $1,911.9 an ounce.
“Ultimately, gold and oil prices are the most sensitive expression of the risks of the (Gaza) conflict,” Kyle Rodda, senior financial markets analyst at Capital.com, wrote in a note.
However, “identifying potential trouble spots and exit scenarios is a major challenge,” Rodda said.
Reporting by Elizabeth Howcroft in London, additional reporting by Kevin Buckland in Tokyo; Editing by David Evans
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