Oil prices shoot up and US stocks decline as Hamas' attack on Israel rattles markets

Israeli forces, dispatched to the border with Gaza in southern Israel, scan the area near Ashdod on October 8, 2023 as the battle against holdout Hamas fighters continues

Gil Cohen-Magen/AFP via Getty Images

• Oil prices jumped as much as 5% Monday on fears Hamas' attack on Israel could lead to supply disruptions.
• US stock futures fell, while safe-haven assets like gold and the dollar surged.
• Wall Street is worried that Saturday's strikes could snowball into a wider conflict.

Oil prices jumped Monday, while US stock futures fell as investors fretted that Hamas' surprise attack on Israel could snowball into a wider conflict.

Brent was up 3% to nearly $87 a barrel at just after 4AM Eastern Time, while West Texas Intermediate also jumped 3% to just over $85 a barrel. Both benchmarks had spiked as much as 5% at the start of the trading session, before paring back some of those gains.

Crude prices rose amid concerns that major producers, including Iran and Saudi Arabia, could become embroiled in the conflict, potentially causing supply disruptions. The Wall Street Journal reported Saturday that Iranian security officials had helped plan the raids on Israel, citing senior members of the militant groups Hamas and Hezbollah.

"How Saudi Arabia, Iran, and the US get drawn into this will be key," Deutsche Bank managing director Jim Reid said in a note. "Geopolitical risk doesn't tend to linger long in markets but there are many second-order impacts that could come through in the weeks, months and years ahead from this weekends' developments."

Meanwhile, US stocks looked set to trade lower, with Wall Street worried that higher oil prices could trigger a flare-up in inflation that would encourage the Federal Reserve to carry on hiking interest rates.

S&P 500 futures slipped 0.6% ahead of the opening bell, while Nasdaq 100 futures were down 0.7%. The Dow Jones Industrial Average was on pace to shed around 200 points, coming off the back of a rough week where it erased all its gains year-to-date.

"Despite the geopolitical risks rising in the Middle East over the weekend, US equity futures remain relatively muted in their reaction to these events," strategists at Denmark's Saxo Bank wrote in a research note.

"Risk sentiment has not accelerated to the downside in early trading hours. However, it is important to note that the risk picture is very complicated in the short-term depending on how Israel decides to respond," they added.

Israel's own benchmark TA-35 stock-market index had plunged 6.5% Sunday, for its biggest loss in over three years.

Here's how other assets are performing ahead of Monday's opening bell:

• Safe havens climbed as investors sought refuge from geopolitical risk. Spot gold prices jumped 1% to over $1,860 per ounce, while a gauge of US dollar strength rose 0.4%.
• The Israeli shekel plunged nearly 2% against the greenback, prompting the Bank of Israel to offer to sell up to $45 billion worth of foreign reserves in a bid to shore up the currency.
• Bond markets are closed for Columbus Day, offering fixed-income investors some breathing room after spiking yields dominated headlines last week.

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