HomeBusinessWall Street is still unconcerned about geopolitics, even after Iran attacked Israel

Wall Street is still unconcerned about geopolitics, even after Iran attacked Israel

The flags of Iran, left, and Israel, right.Manuel Augusto Moreno/Getty Images

  • Wall Street has so far had a muted response to Iran’s attack on Israel.

  • U.S. stock futures rose in the premarket on Monday, while oil prices fell.

  • It’s another reminder that traders are more concerned about interest rates than geopolitical tensions.

The market was reminded of its indifference to geopolitics again on Monday as traders seemingly shrugged off the potential impact of Iran’s attacks on Israel.

U.S. stock futures rose higher in premarket trading to pare some of their losses from a tough Friday session, while benchmark Brent and West Texas Intermediate oil prices fell despite the threat of supply disruptions in the Middle East .

Meanwhile, both gold and the US Dollar Index – which compares the dollar’s strength against a basket of six other currencies – started the week in the red, a sign that investors are shunning so-called ‘safe haven’ assets despite the potential for increased volatility . Ten-year US Treasury yields remained flat.

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Signs that the conflict between the two countries will not escalate further have calmed market nerves, XTB research director Kathleen Brooks said on Monday. Iran said in a statement that “the matter can be considered closed,” while Joe Biden has indicated that the US will not participate in a counterattack on Tehran.

“There is a sense that this attack from Iran could have been much worse, but Iran has drawn the line and said it considers the matter closed,” Brooks wrote in a research note. “From a geopolitical perspective, the focus is now on the Israeli response, but the limited impact of the Iranian attack and the G7’s call for restraint may limit the impact on financial markets in the short term.”

“The initial reaction seems to be one of relief,” she added. “The dollar opened the week on a moderate note and US bond yields are slightly higher, suggesting there has been no flight to safe havens.”

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Anyone who has followed the markets over the past two years will not be surprised by traders’ muted response to the latest tensions in the Middle East.

While big names on Wall Street, including JPMorgan boss Jamie Dimon and billionaire Bridgewater founder Ray Dalio, have repeatedly warned of a global crisis, the market has tended to respond to developments surrounding Israel by shrugging its shoulders.

Since Hamas’s first attack on Oct. 7, the S&P 500 is up 19% — while oil benchmarks are up about $7 a barrel, a much smaller gain than one might expect amid a conflict near much of the country. the world’s largest oil companies. producers.

Neal Shearing, chief economist at the Capital Economics group, said in a research note on Sunday that the Iranian drone strikes are unlikely to impact stocks unless they trigger a huge surge in crude oil prices that leads to the Federal Reserve postpones its first expected interest rate cut.

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“The key risks to the global economy are whether this escalates into a wider regional conflict, and what the response is in energy markets,” he said.

“As things stand now, we feel that events in the Middle East will increase the reasons for the Fed to take a more cautious approach to rate cuts, but they will not prevent rates from being cut altogether Shearing added, noting that the OPEC+ A cartel choosing to increase production levels could offset any price increases resulting from Iran’s attack.

It reminds us that the key figure who will determine the direction of US stocks this year is not Vladimir Putin, Xi Jinping or Iranian Supreme Leader Ali Khamenei; it is the chairman of the central bank, Jerome Powell.

Read the original article on Business Insider

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