Oil and stock futures remained broadly stable Sunday evening as financial markets offered muted reactions to Iran’s launch of hundreds of missiles and drones into Israel on Saturday.
Major U.S. stock indexes and oil prices rose less than 0.2%. West Texas Intermediate crude was hovering below $86 a barrel, while Brent crude was at $90.57. Analysts had previously predicted that Brent could top $100 a barrel after already rising 20% in the year before the attack.
Prices of gold, traditionally seen as another safe haven asset, rose 0.4% to $2,383 an ounce but remain below the record highs reached on Friday.
U.S. Treasuries, another safety trade, sold off slightly, lifting the 10-year yield 1.9 basis points to 4.518%. Likewise, the dollar fell against the euro and the yen.
Cryptocurrencies fell after rebounding from Saturday’s losses. Bitcoin slipped 1.3% to $65,400, while ether fell 0.3% to $3,156.
The weak initial reaction may be due to optimism that the conflict in the Middle East will not escalate. Although it marked Iran’s first large-scale military attack against Israel, 99% of the projectiles were knocked down and no casualties were reported.
Meanwhile, the White House has signaled that it is trying to prevent hostilities from spreading. President Joe Biden reportedly told Prime Minister Benjamin Netanyahu that the United States would not participate in any offensive action against Iran, after promising “armored” support for Israel’s defense.
Capital Economics said in a note early Sunday that rising tension in the Middle East will likely give the Federal Reserve even more reason to slow rate cuts, as oil prices could disrupt the central bank’s battle against l ‘inflation.
“The main risks to the global economy are whether this now turns into a broader regional conflict and what the response will be in energy markets,” wrote Neil Shearing, chief economist at Capital Economics Group.
But he added that potential counterweights include disinflationary pressure from China’s recent expansion of production capacity, which has lowered export prices, and calls from some OPEC+ members to pump more crude, which would lower oil prices .
In the aftermath of the Iranian attack, cryptocurrency prices fell sharply on Saturday evening, but later recovered some losses. The first signs of market nervousness came on Friday, when reports said an Iranian attack was imminent, sending benchmark U.S. oil prices up as much as 3% to above $87 a barrel.
U.S. Treasuries also rallied sharply, sending the 10-year yield down as much as 10 basis points as investors sought safety. The US dollar advanced on Friday as geopolitical tensions pushed investors away from riskier emerging market currencies.
Gold prices rose to a new record above $2,400 an ounce before reversing those gains. And stocks sold off Friday, led by risk-on technology stocks, as investors also digested bank earnings and new inflation data that further dampened hopes of imminent Fed rate cuts.