Oil and Gold Jump, Stocks Slide as Conflict in Middle East Rocks Global Markets

By Dow Jones Newswires Staff

Oil prices leapt and stocks fell across the globe as markets reacted to widening conflict in the Middle East. The U.S. and Israel launched massive attacks against Iran over the weekend, killing Iranian Supreme Leader Ayatollah Ali Khamenei and sparking retaliatory strikes across the region.

Brent crude prices hovered around $80 a barrel after surpassing $82 in Asian trade Monday. Investors anticipate prolonged disruption to shipping through the Strait of Hormuz, the world's most critical oil chokepoint. Traditional safe-haven assets rose, with gold pushing back above $5,400 a troy ounce, while the Swiss franc also jumped. Moves in U.S. Treasurys were muted, however, as 10-year yields edged up after touching an 11-month low overnight.

Airline and banking stocks were hit hard in Asian trade, a pattern that continued at the European open. U.S. equity futures pointed sharply down, as premarket selling also dragged on tech stocks.

Outside of the Middle East conflict, traders look ahead to U.S. non-farm payroll data for February on Friday.

--Crude prices surged after markets reopened following U.S. and Israeli attacks against Iran. In early European trading on Monday, Brent crude climbed 9.4% to $79.70 a barrel after surpassing $82 earlier in the session, while the U.S. gauge West Texas Intermediate rose 7.5% to $71.55 a barrel. European natural-gas prices also jumped, with the most-active front month TTF contract up 22.6% to 39.01 euros a megawatt-hour.

The biggest risks to global oil markets stem from potential strikes on key oil infrastructure in the region or a prolonged disruption to shipping through the Strait of Hormuz, the narrow waterway at the mouth of the Persian Gulf that handles roughly a fifth of the world's oil shipments. Around 20 million barrels of crude oil and refined products pass through the strait each day, meaning that even limited shipping delays could have significant implications for supply chains. Oil prices could hit $100 a barrel if transit flows through the Strait of Hormuz don't resume quickly, energy consultancy Wood Mackenzie said.

--Gold prices surged as investors flocked to safe-haven assets. In early European trading, futures in New York climbed 3.4% to $5,425.20 a troy ounce, extending gains from the previous week. Other precious metals followed suit, with silver futures rising 3.2% to $96.24 an ounce and platinum up 2.1% to $2,422.50. "Renewed tensions inject a fresh geopolitical risk premium at a time when investor positioning was already constructive," Warren Patterson and Ewa Manthey from ING said. "This reinforces gold's role as a preferred hedge."

--U.S. futures for the S&P 500 were down 1.6%, and futures for the Dow Jones Industrial Average declined 1.6%. Defense stocks climbed sharply premarket, however, with RTX and Lockheed Martin shares both climbing around 7.8%. Futures tied to the tech-heavy Nasdaq dropped 1.8%. Major tech names saw large volumes of premarket trading, as Nvidia shares fell 1% premarket.

--In Asia, airline stocks suffered steep losses in Asia as various carriers announced flight suspensions due to air space closures. Japan Airlines slid 5.9%, Singapore Airlines shed 5.4% and Cathay Pacific Airways was down 4.1%.

Japan's Nikkei 225 index dropped 1.3%, while Hong Kong's Hang Seng closed down 2.1%. Financial and healthcare stocks sold off in both sectors. HSBC fell 5.2% in Hong Kong. In Korea, the Kospi 200 index closed down 1.1%.

On the flip side, shipping stocks gained amid the risk of potential disruptions to vital routes like the Strait of Hormuz, a waterway between Oman and Iran that is a strategic flow point for Middle Eastern ships carrying fuel to Asia. China's benchmark Shanghai Composite closed 0.5% higher.

--Europe's blue-chip indexes were down at the open as airlines, banks and consumer-sensitive stocks fell sharply. Spanish and Italian indexes--which are weighted toward banks--were down most steeply, with the IBEX 35 falling 3% in Madrid while the FTSE MIB fell 2.4%. Santander dropped 4.15% in Spain, while International Consolidated Airlines Group was down 7.3%. The CAC 40 dropped 2% as luxuries bellwether LVMH fell 4%. Banks and industrial stocks dragged the German DAX down 2.4%. The Dutch AEX fell 1.2%, as ASML dropped 3.4%. Energy and defense stocks gained significantly, however. The U.K.'s FTSE 100 was down 0.9%, though BAE Systems climbed 7.6% and oil supermajor Shell jumped 5%.

--The dollar rose to a five-week high against a basket of currencies as conflict in the Middle East boosted demand for safe-haven assets. While conflict might have caught many off guard, the immediate fallout could be relatively contained given this risk premium was already partly embedded in markets and the attack occurred when markets were closed, Ebury's Matthew Ryan said in a note. "That said, risk off trading is likely to dominate for now." The DXY dollar index rose to a high of 98.387.

--The movement in global government bond yields this morning has been small so far despite the U.S.-Iran conflict, Danske Bank's Jens Peter Sorensen said in a note. "However, the escalations come at time with solid macroeconomic fundamentals and little stress in the market as volatility has been very low for several months," the chief analyst said. While Danske thinks some risk-off movement is yet to come together with higher volatility, safe-haven moves have been more modest and short-lived recently compared with previous years. The 10-year Treasury yield last traded 0.4 basis points lower at 3.957%, according to LSEG.

--Bitcoin recovered from earlier falls after President Trump and Israel launched military attacks on Iran during the weekend. Although risk aversion is negative for bitcoin, the cryptocurrency tends to benefit from concerns about inflation as conflict in the Middle East causes oil prices to jump, 21shares' Stephen Coltman said in a note. "It makes sense that we have subsequently seen bitcoin prices recover over the weekend given it too benefits from higher inflation expectations," he said. Bitcoin rose 0.4% to $65,948, having fallen overnight, LSEG data show. Ether edged down 0.1% to $1,926.80.

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(END) Dow Jones Newswires

03-02-26 0454ET