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Oil soars amid Middle East conflict, gold gains: markets wrap

Oil soars amid Middle East conflict, gold gains: markets wrap
The Marriner S. Eccles Federal Reserve building in Washington, D.C., US, on Wednesday, 6 July 2022.

Oil jumped to head back toward $90 a barrel after Hamas’ surprise attack on Israel triggered fears of a supply shock. Gold gained along with the dollar on haven bids.

West Texas Intermediate climbed above $86 a barrel while Brent touched $89 as traders braced for a wider conflict after the US said it was sending warships to the region. The Wall Street Journal reported that Iranian security officials helped Hamas plan its attack on Israel, which risks triggering a retaliation against Tehran.

The greenback gained versus the euro and pound, while riskier currencies slipped. The yen — another favoured refuge for investors — strengthened. Meanwhile, Australian and New Zealand bonds reversed early declines and US stock futures dropped.

“The events over the weekend obviously destabilise the region; investors have a lot to mull over,” said Kyle Rodda, senior market analyst at “Ultimately, these events tend to have only a short-term impact on financial markets, and it’s probable that this time will be the same. Investors could be jumpy for a couple of days until the risks of escalation have clearly diminished, though.”

The fallout from the Israel attacks reverberated through Middle East markets on Sunday, sending stocks sliding. Major equities gauges in the region fell, led by a drop on Israel’s benchmark TA-35 stock index, which posted its biggest loss in more than three years, sliding 6.5%.

Iran is both a major oil producer and supporter of Hamas. Any retaliation against Tehran may endanger the passage of vessels through the Strait of Hormuz, a vital conduit that Iran has previously threatened to close.

China reopens

A gauge of Asian energy shares outperformed the region, led by Australian names such as Santos Ltd. and Woodside Energy Group Ltd.

Shares fell in mainland China as the market reopened after the Golden Week holiday. The morning session in Hong Kong was scrapped due to a typhoon, and trading will resume in the afternoon. Stocks rose in Australia. The S&P 500 had advanced 1.2% on Friday, snapping a four-week losing streak. The Nasdaq 100 jumped 1.7% with large-cap tech names, including Microsoft Corp., Apple Inc. and Nvidia Corp., powering the index higher. 

While the Golden Week data was encouraging, confidence remained fragile in China, according to Hao Hong, partner and chief economist at GROW Investment Group. “If you are a smaller business in China, you are still probably struggling because bank risk aversion makes it hard to lend to SMEs,” he said on Bloomberg Television.

Data showed tourism revenue from the holiday surged on an annual basis, but edged only slightly above its pre-Covid level, suggesting relatively muted consumer sentiment continues to weigh on the country’s economic growth.

The offshore yuan edged higher after the People’s Bank of China once again set the daily fixing at a stronger level than traders’ estimates.

South Korean and Japanese markets are shut for a holiday and there is no cash trading of Treasuries.

Inflation worries

Rising oil prices could add to already high global inflationary pressures with investors still debating the odds of another rise in interest rates by the Federal Reserve this year.

“Any extension of this to oil-producing countries, Saudi Arabia in the lead, could make the price of crude oil more expensive, with negative inflationary effects for the West and would mean higher rates for longer,” said Guillermo Santos, head of strategy at Spanish private banking firm iCapital.

Yields on 10-year and 30-year Treasuries calmed on Friday after touching 2007 highs near 4.9% and 5.1%, respectively as global bonds sold off for a fifth straight week. An unexpected surge in hiring left swaps traders pricing in a roughly 50/50 chance of a rate hike by December. 

The US nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — more than double economists’ estimates. The unemployment rate held steady at 3.8%, data from the Bureau of Labour Statistics showed on Friday.


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