On Monday, oil prices rose more than 4%, gold rose, and the safe-haven US currency moved up against the euro as military battles between Israel and the Palestinian Islamist organization Hamas fueled fears that the crisis might expand beyond Gaza.
US markets finished higher, with energy firms increasing in tandem with oil prices. The S&P 500 energy index (.SPNY) gained 3.5%. The shekel in Israel has plummeted dramatically. The dollar was trading at 3.955 shekels, up around 3%.
The Bank of Israel previously stated that it will sell up to $30 billion in foreign currency in order to preserve stability. Israeli government bonds have also declined.
The Israeli military said on Monday that it has called up an unprecedented 300,000 reservists and was enforcing a total blockade of the Gaza Strip, implying that it is contemplating a ground invasion in retaliation to the deadly weekend attack by Hamas terrorists.
“Typically, emerging markets, commodities, and currencies are the most sensitive asset classes to geopolitical risk – and, true to form, we’ve seen hits in all of those areas,” said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight. “Wars are inflationary and wars in the Middle East especially are inflationary,” she went on to say.
Brent crude jumped $3.57, or 4.2%, to $88.15 per barrel, while West Texas Intermediate crude rose $3.59, or 4.3%, to $86.38 per barrel. Emerging market equities (.MSCIEF) fell 0.20%, while safe-haven gold rose 1.6% to $1,860 per ounce.
On Wall Street, shares of U.S. airlines fell dramatically as oil prices rose. Direct flights to Tel Aviv have been stopped by United Airlines (UAL.O), Delta Air Lines (DAL.N), and American Airlines (AAL.O).
Nonetheless, the Dow Jones Industrial Average (.DJI) increased by 197.07 points, or 0.59%, to 33,604.65, the S&P 500 (.SPX) increased by 27.16 points, or 0.63%, to 4,335.66, and the Nasdaq Composite (.IXIC) increased by 52.90 points, or 0.39%, to 13,484.24. The pan-European STOXX 600 index (.STOXX) fell 0.26%, while the MSCI World Index (.MIWD00000PUS) rose 0.40%.
The euro slipped 0.19% versus the dollar to $1.0566, while the dollar index, a gauge of the US currency against six others, fell 0.16% after earlier trading higher. On Monday, the cash Treasury market was closed for Columbus Day. Ten-year Treasury futures increased.
The turmoil in the Middle East occurs at a time when markets are anxious and bond rates are at multi-year highs throughout the world. Investors are looking forward to the release of consumer pricing data in the United States later this week. This week also marks the unofficial start of the third-quarter corporate earnings season in the United States, with J.P.Morgan (JPM.N) and other banks reporting results.
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