SINGAPORE (Reuters) -Global shares slipped on Monday while oil prices briefly hit five-month highs and the dollar firmed as the world held its breath to see if Iran would retaliate against U.S. attacks on its nuclear sites.
Market reaction to the weekend escalation of the conflict in the Middle East has been subdued so far as investors remain in wait-and-see mode.
Here are some comments from market analysts:
“The price action in response to the escalating Middle East conflict has been muted so far as markets wait and see how Iran responds. Judging by the small fall in FOMC rate cut pricing by year-end, there are more worries about the positive inflationary impact of the Middle East conflict than the negative economic impact. The currency markets will be at the mercy of comments and actions from the Iranian, Israeli and U.S. governments. The risks are clearly skewed to further upside in the safe haven currencies if the parties escalate the conflict.”
“Markets appear to be treating the U.S. strikes on Iran as a contained event for now, rather than the start of a broader war. The muted haven flows suggest investors are still assuming this is a one-off escalation, not a disruption to global oil supply or trade.
“Markets may be responding not to the escalation itself, but to the perception that it could reduce longer-term uncertainty. If Iran’s nuclear capabilities are seen as meaningfully set back, some investors may interpret that as a de-escalation in disguise — a geopolitical risk removed, rather than added.
“That said, any sign of Iranian retaliation or threat to the Strait of Hormuz could quickly shift sentiment and force markets to reprice geopolitical risk more aggressively.”
“The market reaction to weekend developments has been muted to state the least. The price action implies this will be a short-lived conflict, that escalation will ultimately lead to de-escalation.”
“On Monday, in light of weekend geopolitical risk events in the Middle East, market participants adopted a wait-and-see stance. Although the market initially anticipated a bull-flattening of the JGB curve following last week’s unexpectedly large reduction in 20-year bond issuance, muted movements in U.S. interest rates, combined with a shift in sentiment toward dollar buying rather than selling, made it challenging for investors to take decisive positions.”
