Investors are closely monitoring events in Israel as a potential geopolitical risk to markets. There is a belief that the violence could lead to a shift towards safe haven assets.
On Saturday, gunmen from the Palestinian group Hamas launched an unprecedented attack on Israel. The attack was condemned by Western countries, including the United States, who pledged their support for Israel.
Analysts suggest that rising geopolitical risk could result in increased buying of assets like gold and the dollar. This could also potentially boost demand for U.S. Treasuries, which have experienced significant selling pressure. Peter Cardillo, chief market economist at Spartan Capital Securities, emphasized the importance of gold as a hedge against international turmoil and predicted that the dollar would also benefit from the situation.
Cardillo further stated that the dollar tends to strengthen during times of international turmoil.
In recent weeks, markets have been reacting to expectations of higher U.S. interest rates. Bond yields have risen sharply, and the U.S. dollar has been on a winning streak. Stocks, on the other hand, experienced significant losses in the third quarter but have stabilized in the past week.
Brian Jacobsen, chief economist at Annex Wealth Management, commented on the situation in Israel, stating that the impact on the markets would depend on the duration of the conflict and whether other countries become involved. He also questioned the potential impact on oil prices despite Iran’s increased output.
The Hamas attack received praise from Iran and its Lebanese allies, Hezbollah. Jacobsen noted that while Iranian oil production has been increasing, their celebration of Hamas’s actions could undermine any progress made in behind-the-scenes negotiations with the U.S. He also mentioned that the possible loss of output would matter but would not be significant.
Jacobsen highlighted the importance of Saudi Arabia’s reaction to the situation. The U.S. has been working towards normalizing ties between Israel and Saudi Arabia.
David Kotok, chair and chief investment officer at Cumberland Advisors, expressed concern about the situation in the U.S., particularly the dysfunction in Washington. With Republicans searching for a successor to ousted Speaker Kevin McCarthy and a budget showdown looming, Kotok worries about the impact on U.S. determination and defense capability.
Overall, the situation in Israel is being closely watched by investors due to its potential impact on the markets. The violence has raised geopolitical risks, which could lead to a shift towards safe haven assets.
