(Reuters) – Iran on Sunday warned Israel and the United States of a “much greater response” in retaliation for its massive drone and missile attack on Israeli territory on Saturday, as Israel said that “the campaign is not yet over”.
Iran launched explosive drones and missiles at Israel in retaliation for a suspected Israeli attack on its consulate in Syria on April 1, a first direct attack on Israeli territory that fueled fears of a broader regional conflict.
Below are analyst quotes on how financial markets are likely to react to developments.
MICHAEL PURVES, HEAD OF TALLBACKEN CAPITAL ADVISORS
“If oil continues to rise from here, it will make the fundamentals of U.S. bonds a little worse by keeping inflation higher for longer and further reducing the Fed’s propensity to cut rates.”
“A countervailing factor is that whatever happens, there will be nervousness and that will keep bonds from selling too much again.”
“We have already integrated many stocks into the US stock market. On the one hand, there was a risk condition at the beginning of the year and the risks will eventually be purchased.
“But at the end of the day, why not book a profit when the news is so uncertain?”
SAMY CHAR, CHIEF ECONOMIST LOMBARD ODIER, GENEVA
“The news is about Iran and Israel, so that will be the main thing (what people will discuss on Monday), but we are still in an environment where we have not yet digested the news about inflation in the United States and what it means for the world. Fed, and will they be able to cut rates.
“We entered this weekend of geopolitical tension following the IPC report. It’s a fragile market environment in the short term, but after a fantastic period, so it’s only right that there is a bit of vulnerability.”
TINA FORDHAM, FOUNDER AND GEOPOLITICAL STRATEGIST, FORDHAM GLOBAL FORESIGHT, LONDON
“The scale of the Iranian attack on Israel and its launch from inside Iran as well as through proxies is significant. In terms of market reaction, we have started to see commodity prices increase on Friday.
“Over the coming days, we await Israel’s response. This is the largest attack on Israel in decades. The risk of a regional war has increased significantly. The question is whether Israel seeks to expand the conflict?
“I think oil is going to open higher. Signs that Iran wants to implement a moderate blockade of the Strait of Hormuz are also concerning, because it means there is potential for both supply chain disruptions and rising oil prices. We have entered a dangerous period ahead of the US elections.
NICK FERRES, DIRECTOR OF INVESTMENTS, VANTAGE POINT ASSET MANAGEMENT, SINGAPORE
“I’m not going to be an ‘armchair general’ and claim to have an advantage on how the escalation will play out. From our perspective, the most important news for the markets last week was the reacceleration of the consumer price inflation and the implication on the future evolution of short-term interest rates.
“Also, disappointment with the details of JPM and Wells results on Friday. In this context, as we have seen for some time, risk compensation in equities is poor, in pure terms and relative to Treasuries. We had already reduced our net long equity exposures before this over the past two weeks.
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MILWAUKEE, WISCONSIN
“The key is whether Iran will view this retaliation as a measured and definitive response, unless Israel decides to escalate. In 2020, Iran considered its response to the assassination of General Soleimani by the United States as a measured and fair response If there remains tit for tat, Instead of an escalation, we will likely see a sigh of relief in stocks, even if the prices of oil, gold, dollars and bonds all incorporate a risk premium to reflect the conflict.
(Reporting by Tom Westbrook, Alun John, Dhara Ranasinghe and Megan Davies; editing by Susan Fenton)
