The Nikkei 225 index was up around 0.8% at the open, while US equity futures reversed earlier losses to edge higher. A broad gauge of Asian stocks was up around 0.2%.
Stocks had tumbled on Friday as investors reacted to reports that Israel had launched airstrikes against Iran, and the conflict between the two escalated over the weekend with a series of attacks from both sides.
A Bloomberg gauge of the dollar was slightly up in early trading Monday, while safe haven currency the Japanese yen lost ground. Brent crude rose as much as 5.5% in early trading.
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Still, there is plenty of uncertainty for markets at the moment. Israel launched an attack on the giant South Pars gas field in the Persian Gulf, forcing the shut down of a production platform, after air strikes on Iran’s nuclear sites and military leadership last week.“Markets should be prepared for a prolonged period of uncertainty,” said Wolf von Rotberg, an equity strategist at Bank J. Safra Sarasin. “Hedging against potential oil supply-chain disruptions via exposure to the energy market and adding to gold, which may see an acceleration of its structural uptrend, are the best ways to protect a portfolio against a further escalation in the Middle East.”A major concern for investors is that the conflict leads to a prolonged disruption to the supply of oil. That could weigh on the global economy and potentially fuel a round of inflation just as many central banks pivot towards easing. The Federal Reserve and the Bank of Japan are among a raft of central banks set to announce interest rate decisions this week.
Pause Not Panic
In the region, most Middle East stock indexes dropped on Sunday. Egypt’s main gauge was the worst performer, seeing the biggest losses in more than a year on concern that a halt in Israeli gas production will cause fuel shortages. In Saudi Arabia, the Tadawul gauge’s declines were limited by Aramco, which gained on higher oil prices. Israel’s benchmark ended higher as military supplier Elbit Systems Ltd. rallied.
Traders are weighing the fresh geopolitical risks at a time when they are also grappling with destabilized global trade relationships, the prospect of new tariffs from US President Donald Trump, economic cross-currents, the ongoing conflict between Russia and Ukraine and rising political tensions in the US amid protests.
“Unless oil stays elevated and drives inflation higher, this is more likely a pause than a panic as other narratives are driving the market,” said Dave Mazza, chief executive officer, Roundhill Investments. “It may present a buying opportunity, but with markets having rallied sharply off recent lows, gains from here will be harder to come by.”
