Daily Management Review

Investors Nervous As Fighting In The Middle East Heats Up


Investors Nervous As Fighting In The Middle East Heats Up
As investors anticipate a Federal Reserve meeting and important U.S. data in the next week, they are keeping an eye out for any indications that the situation in the Middle East may worsen over the weekend, which might increase volatility.
As ground operations against Hamas militants continue, Israeli forces have initiated the second phase of the Gaza war, according to Prime Minister Benjamin Netanyahu's statement on Saturday.
Concerns of an escalating conflict have increased among investors in the wake of U.S. military deployments to the Middle East and Israel's attacks on targets in Gaza and Hamas sympathisers in Lebanon and Syria.
"The situation in Israel is … causing a lot of anxiety,” said Randy Frederick, managing director of trading and derivatives for Charles Schwab.
Brent futures closed 2.9% higher at $90.48 a barrel on Friday due to worries that the violence would affect the supply of crude oil. The price of spot gold, a well-liked refuge for uneasy investors, surged above $2,000 for the first time since mid-May.
Capital Economics analysts noted in a note on Friday that the oil market's reaction to the fighting has been "muted" thus far.
"That said, any sign that the other countries in the region are becoming more involved in the conflict would cause oil prices to rise sharply," they wrote.
According to Peter Cardillo, chief market analyst at Spartan Capital Securities, Treasury rates may rise above their current 16-year highs if the war escalates and the US has increase war-related spending, which would increase the deficit.
Additionally, some investors believe that growing tension may lead to safe-haven Treasury bond purchases. As yields are inversely correlated with prices, this might temper the spike in yields, which would lessen the pressure on stocks and other assets.
Although the index is up more than 7% so far this year, the S&P 500 has dropped more than 10% since late July, when it hit its peak for 2023.
"So far, U.S. government bonds have not been performing their usual safe-haven function," UBS Global Wealth Management said in a note on Friday. "However, an escalation of the conflict would likely shift attention away from monetary policy concerns and boost safe-haven demand for Treasuries."
They added that hedges against short-term volatility might be obtained from both gold and oil.
Following the confrontation, the Cboe Volatility index increased and reached seven-month highs on Friday.
A busy week of corporate reports continues this week, with the Federal Reserve expected to release its most recent monetary policy statement on Wednesday in addition to Apple's quarterly findings.