Oil futures and stocks traded little changed on Sunday evening as financial markets reacted subduedly to Iran’s launch of hundreds of missiles and drones into Israel on Saturday.
Major US stock indexes and oil prices rose less than 0.2%. West Texas Intermediate crude hovered below $86 a barrel and Brent crude traded below $90.57. Analysts had previously predicted that Brent could rise above $100 a barrel after already rising 20% in the year before the attack.
Gold prices, traditionally seen as another safe-haven asset, rose 0.4% to $2,383 an ounce but remained below record highs hit on Friday.
U.S. Treasuries, another defensive trade, fell slightly, pushing the 10-year yield up 1.9 basis points to 4.518%. Likewise, the dollar fell against the euro and the yen.
Cryptocurrencies fell after recovering from losses on Saturday. Bitcoin fell 1.3% to $65,400 and Ethereum fell 0.3% to $3,156.
The muted initial reaction may be due to optimism that the Middle East conflict will not escalate. Although this marked Iran’s first-ever full-scale military attack on Israel, 99% of the projectiles were shot down and no deaths were reported.
Meanwhile, the White House has signaled it is committed to preventing the fighting from spreading. President Joe Biden has reportedly told Prime Minister Benjamin Netanyahu that the US will not engage in any offensive action against Iran after pledging “iron-iron” support for Israel’s defence.
Capital Economics reported that in a note early on Sunday Rising tensions in the Middle East are likely giving the Federal Reserve even more reason to delay cutting rates as oil prices threaten to undermine the central bank’s fight against inflation.
“The key risks to the global economy are whether this now escalates into a broader regional conflict and what the reaction will be in energy markets,” wrote Neil Shearing, chief economist at Capital Economics Group.
But he added that potential counterbalances include deflationary pressure from China’s recent expansion of production capacity, which has lowered export prices, as well as demands from some OPEC+ members to pump more crude, which would push oil prices lower.
Immediately after the Iranian attack, cryptocurrency prices fell sharply on Saturday evening, but later recovered some losses. Earlier signs of market concern emerged on Friday when reports suggested an Iranian attack was imminent, causing benchmark US oil prices to rise as much as 3% to above $87 a barrel.
U.S. Treasuries also rose sharply, sending the 10-year yield down 10 basis points as investors sought safety. The US dollar rose on Friday as geopolitical tensions sent investors away from riskier emerging market currencies.
Gold prices rose to a new record high above $2,400 an ounce before reversing their gains. Stocks sold off Friday, led by risky technology stocks, as investors also digested bank earnings and fresh inflation data that further dampened hopes of an imminent Fed rate cut.