The escalating violence in Israel is expected to drive investors towards safe haven assets as they monitor Middle East developments for potential market-related geopolitical risks.
On Saturday, Palestinian group Hamas launched an unprecedented attack in Israel, drawing condemnation and support for Israel from Western nations, particularly the United States. This heightened geopolitical tension may lead to increased investments in assets such as gold, the U.S. dollar, and possibly U.S. Treasuries, which have experienced significant sell-offs.
In recent weeks, market dynamics have been influenced by the anticipation of prolonged higher U.S. interest rates, resulting in surging bond yields and a sustained uptrend for the U.S. dollar. Concurrently, the stock market experienced significant losses during the third quarter but exhibited signs of stabilization in the past week.
Iran and its Lebanese allies, Hezbollah, openly commended the Hamas attack. “Whether this is a massive market moment or not depends on how long it lasts and whether others are sucked into the conflict,” said Brian Jacobsen, chief economist at Annex Wealth Management, of the situation in Israel.
“Iran’s increasing oil production faces potential setbacks due to their public support for Hamas,” warned Jacobsen, who also noted that while any output loss is significant, it won’t have a seismic impact.
The key factor to watch, according to Jacobsen, is how Saudi Arabia responds. The U.S. has been actively pursuing a deal to normalize relations between Israel and Saudi Arabia.
David Kotok, Chair and Chief Investment Officer at Cumberland Advisors in Sarasota, Florida, expressed concern over the situation, citing the U.S.’s internal political challenges. He highlighted the need for U.S. resolve and defense capabilities in handling potentially explosive situations, but he noted that this capacity could be hampered by the ongoing dysfunction in Washington, which includes the search for a successor to the ousted Speaker Kevin McCarthy of the House of Representatives and an impending budget showdown.
(Source: Megan Davies | Lisa Shumaker | Reuters)
