[1/2]A chart of the German DAX stock price index is photographed at the Frankfurt Stock Exchange, Germany, on October 13, 2023. REUTERS PHOTO/STAFF/FILE Obtaining licensing rights
LONDON (Reuters) – European stock indices fell on Monday, but oil prices retreated after recent gains, with cautious markets awaiting signs of escalation that could determine the financial repercussions of the war between Israel and Hamas.
Israeli Prime Minister Benjamin Netanyahu vowed Sunday to “destroy Hamas” as his forces prepared to move into the Gaza Strip to pursue Hamas militants whose deadly attack on October 7 killed 1,300 people in the worst attack on civilians in Israel’s history.
Oil prices rose last week as investors appreciated the opportunity for escalation in the world’s largest oil-producing region, while US Treasuries and gold prices rose as traders bought safe-haven assets.
Traders are waiting to see if the conflict will spread to other countries, which would cause oil prices to rise further and deal a new blow to the global economy. They are particularly monitoring Iran, which said on Sunday that its armed forces will not engage militarily with Israel as long as Israel does not attack it, its interests or its citizens.
At 0823 GMT, the MSCI World Equity Index was down 0.2% on the day (.MIWD00000PUS). European stock indices were in the red, with the STOXX 600 down 0.2% (.STOXX) and London’s FTSE 100 down 0.1% (.FTSE).
Oil prices fell after rising last week. Brent crude futures fell 59 cents, or 0.65%, to $90.3 per barrel. US West Texas Intermediate crude fell 0.7 percent, or 59 cents, to $87.06 a barrel.
“What the market is looking for in order for the mood to improve is any kind of calm… On the downside, any feeling that oil-rich countries will intervene will be a catalyst to push stocks. “The price has fallen,” said Fiona Cincotta, chief market analyst at City Index.
“Any further comments from Iran will be a major focus.”
Senior US officials warned on Sunday that the war could escalate into a broader conflict in the Middle East. US Secretary of State Antony Blinken arrived in Israel on Thursday and also visited Qatar, Jordan, Bahrain, the United Arab Emirates, Saudi Arabia and Egypt in an attempt to limit the spread of the conflict.
Before the Hamas attack, market sentiment was driven by the global economy and the idea that the US Federal Reserve was planning to keep interest rates higher for longer. That narrative, along with the company’s earnings this week, has become secondary to geopolitical concerns, Cincotta said.
US 10-year Treasury yields rose to 4.6872%, after falling more than 8 basis points on Friday amid demand for the safety of bonds.
European government bond yields rose, after European Central Bank officials reiterated concerns about inflation. The German 10-year yield rose 4 basis points to 2.779%.
The US Dollar Index fell slightly, down 0.1% on the day at 106.470. The euro rose 0.2 percent to $1.0533.
The Israeli shekel fell to its lowest levels in more than eight years.
Gold pared some of Friday’s $63 gains, falling 1% to $1,911.9 an ounce.
“Ultimately, gold and oil prices are the most sensitive expression of conflict risks (in Gaza),” Kyle Rodda, senior financial markets analyst at Capital.com, wrote in a note.
However, “identifying potential stress points and gameplay scenarios is a major challenge,” Ruda said.
(Additional reporting by Elizabeth Howcroft in London) Additional reporting by Kevin Buckland in Tokyo; Edited by David Evans
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