Equities sink, oil rallies on fears of wider war
Stock markets fell and oil prices climbed yesterday on growing fears of a wider war in the Middle East after Israel’s army chief vowed a response to Iran’s unprecedented attack on his country at the weekend.
All eyes are on the Middle East after Tehran fired hundreds of missiles and drones at its regional enemy, saying the attack was retaliation for an April 1 strike on its Damascus embassy that killed seven Revolutionary Guards including two generals.
While air defence systems destroyed the vast majority of the barrage and Iran said “the matter can be deemed concluded”, Israel’s General Herzi Halevi sounded a note of warning, fuelling worries of a dangerous escalation.
“This launch of so many (Iranian) missiles, cruise missiles, and UAVs into the territory of the State of Israel will be met with a response.”
However, he said the military would not be distracted from its war against Hamas in Gaza.
Warren Patterson, at ING Groep, said the prospect of a response by Tel Aviv “means that this uncertainty and tension will linger for quite some time”.
“The more escalation we see, the more likely we are to see oil supply from the region impacted.”
Oil prices rose in Asian trade, having slipped on Monday on hopes for a de-escalation following US calls for Israeli Prime Minister Benjamin Netanyahu to “take the win” and forgo a counterattack.
Hong Kong, Seoul, Taipei and Manila were all down more than 2%, while Tokyo shed 1.9%.
Shanghai, Sydney, Singapore and Jakarta sank more than 1% each, while there were also losses in Wellington and Mumbai.
London, Paris and Frankfurt were all down more than 1%.
The losses in Asia followed a big sell-off on Wall Street, which was dragged down by tech giants including Amazon, Apple and Alphabet.
That came after figures showed March retail sales beat expectations in yet another indication that the US economy remains strong despite two-decade-high interest rates.
The reading followed news that inflation came in above estimates for the third time in a row last month, while jobs creation was also much stronger than forecast, putting pressure on the Federal Reserve to hold off cutting interest rates.
Investors are now betting on just two reductions this year, compared with six pencilled in at the beginning of January.
And UBS has warned that borrowing costs could even go up if inflation is not brought under control.
“If the (economic) expansion remains resilient and inflation gets stuck at 2.5% or higher, there would be real risk the (Fed policy board) resumes raising rates again by early next year,” said UBS strategists.