Today's Edition
NEW YORK (Reuters)
A US attack on Iranian nuclear sites on Saturday could lead to a knee-jerk reaction in global markets when they reopen, sending oil prices higher and triggering a rush to safety, investors said, as they assessed how the latest escalation of tensions would ripple through the global economy.
The attack, which was announced by President Donald Trump on social media site Truth Social, deepens US involvement in the Middle East conflict. That was the question going into the weekend, when investors were mulling a host of different market scenarios.
In the immediate aftermath of the announcement, they expected the US involvement was likely to cause a selloff in equities and a possible bid for the dollar and other safe-haven assets when trading begins, but also said much uncertainty about the course of the conflict remained.
While Trump called the attack "successful", few details were known. He was expected to address the nation later today.
"I think the markets are going to be initially alarmed, and I think oil will open higher," said Mark Spindel, chief investment officer at Potomac River Capital.
Spindel, however, said there was time to digest the news before markets open and said he was making arrangements to talk to other market participants.
OIL PRICES, INFLATION
A key concern for markets would center around the potential impact of the developments in the Middle East on oil prices and thus on inflation. A rise in inflation could dampen consumer confidence and lessen the chance of near-term interest rate cuts.
While global benchmark Brent crude futures have risen as much as 18% since June 10, hitting a near five-month high of $79.04 on Thursday, the S&P 500 has been little changed, following an initial drop when Israel launched its attacks on Iran on June 13.
On average, the S&P 500 slipped 0.3% in the three weeks following the start of conflict, but was 2.3% higher on average two months following the conflict, according to data from Wedbush Securities and CapIQ Pro.
DOLLAR WOES
An escalation in the conflict could have mixed implications for the US dollar, which has tumbled this year amid worries over diminished US exceptionalism.
In the event of US direct engagement in the Iran-Israel war, the dollar could initially benefit from a safety bid, analysts said.
