Federico Macchioni and Alan John
DUBAI/LONDON (Reuters) – Gulf markets fell marginally on Sunday, an early sign of investor reaction to Iran’s unprecedented attack on Israeli territory, as investors prepare for trading to resume in most markets on Monday, with a particular focus on oil.
Activity could be volatile as traders also digest last week’s global macroeconomic data and, most importantly, higher-than-expected US inflation.
Saudi Arabia’s benchmark stock index closed 0.3% lower, recovering from an earlier fall, while Qatar’s main index was down 0.8%.
Shares in the broad Tel Aviv index rose 0.3%.
Iran launched explosive drones and missiles at Israel on Saturday in retaliation for an alleged Israeli attack on its consulate in Syria, and on Sunday warned Israel and the US of a “much larger response” if there was any retaliation.
Israel said “the campaign is not over yet.”
“The question is: is Israel seeking to widen the conflict? It’s an unclear question,” said Tina Fordham, geopolitical strategist at Fordham Global Foresight in London, adding that she expects oil prices to rise on Monday.
Oil prices had already received support last week on concerns about Iran’s response, helping lift the global benchmark to $92.18 a barrel on Friday, the highest level since October.
Some safe-haven assets also rose on Friday as traders fear the risk of developments over the weekend when markets are closed. The indicator, which moves inversely to its price, fell nearly 8 basis points, its biggest daily drop in a month. [US/]
Meanwhile, gold rose above $2,400 an ounce, the latest in a string of record highs. [GOL/]
one of the few assets traded 24 hours a day, fell 8% in about 20 minutes to below $62,000 at around 2000 GMT on Saturday, around the time reports emerged of the ongoing attack.
It has since regained some ground and was last trading around $64,500.
FRAGILE ENVIRONMENT
However, investors will be thinking about more than just geopolitics on Monday.
“The news flow is about Iran and Israel, so that will be a big part (of what people will be discussing on Monday), but we are still in an environment where we have not yet digested the news about US inflation and what that means for economy. Federal Reserve,” Sami Chaar, chief economist at Geneva-based Lombard Odier, said Sunday.
“This weekend we faced geopolitical stress following the release of the CPI report. It’s a fragile market environment in the short term, but after a fantastic period, so it’s fair that there is some vulnerability.”
Since Iran-backed Hamas attacked Israel on October 7 and Israel responded by invading Gaza, the MSCI global stock index rose to new highs, helped by robust economic data, especially in the United States, and expectations that major central banks will cut interest rates.
Saudi Arabia’s main index has risen about 20% since October 8. Qatar’s benchmark index is trading at roughly the same level as on October 8.
And because geopolitics is just one hard-to-predict factor to consider, some international investors are focusing on the bigger economic picture.
“I’m not going to be an armchair general and pretend that I have an advantage on how the escalation will play out,” said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
“In our view, the most important news for markets last week was the resumption of consumer price inflation and its impact on the path of future short-term interest rates.”