The Israeli-Iran conflict escalated over the weekend. It wasn’t something we could learn from looking at financial markets on Monday. Major US equity benchmarks have opened higher. Oil prices have fallen. Gold, the ultimate safe haven asset, is also framed low. Overseas, the Pan-European Stoxx 600 was slightly higher, and the Asia-Pacific inventory index also rose. It is basically the opposite mirror to Friday’s actions, as Israel is taking the course through global markets, lower stocks, and gaining oil spikes and gold, so it’s the opposite mirror to Friday’s actions. Investors following the news over the weekend may have been expecting more of the same Monday, especially after learning that Israel had attacked Iran’s energy infrastructure. Iran’s missile strikes also damaged Haifa’s oil refineries, the Israeli era reported. So why is the market on Monday shrugging it so far? Simply put, traders and investors bet that the attack between two long-standing enemies will not ripple into wider regional conflicts that will disrupt the global economy. It remains to be seen whether that is the right bet or not. As CNBC reported Monday, some market watchers say investors aren’t lowering the “risk of a massive fire in the Middle East.” However, shortly after the opening bell on Monday, the Wall Street Journal reported that Iran signaled other countries that it wanted to end its fight against Israel. “This time, will geopolitics really affect the market?” “Historically, only when it has influenced macro variables such as growth and inflation,” writes Henry Allen. “So, important geopolitical events, such as the oil crisis in the 1970s, the Gulf War in 1990, and Russia’s invasion of Ukraine in 2022, were shocks for male dogs,” said Allen, noting that Brent’s oil prices rose about 7% to about $74 per barrel on Friday, but the international oil benchmark is still below the average of around $80. “So this isn’t causing a wider inflation problem yet. Obviously, the larger priced spikes will evoke a 2022 scenario in which central banks hiked rates to close out inflation,” Allen wrote. “But, at least so far, we haven’t seen it yet. The extent of the market’s resilience to this year’s repeated shock, if any, was an important story in itself.” Key point from Deutsche Bank’s memo: Oil prices in response to the Israeli-Iran conflict are of the most important importance to the global economy, and therefore the stock market. As CNBC’s senior market commentator Michael Santri said on Monday, “If oil doesn’t add any more risk premiums in response to something like the conflict we’re currently seeing, Equites is not going to rethink it.” According to the U.S. Energy Information Agency, the biggest risk to oil prices is that Iran has shut down the Strait of Hormuz, the “world’s most important oil choke” between Iran and Oman. Oil prices could exceed $100 a barrel due to disruptions in the spread of transport in the Strait of Hormuz, Goldman Sachs estimated Friday. Approximately 20% of the world’s oil production flows through the Strait of Hormuz, the company said. Certainly, Goldman analysts said they don’t believe there is a high probability of trade disruption. Max Leighton, Citigroup’s global product research director, said he expects to see stronger oil prices again on Monday. “Obviously, there were a lot of short covers on Friday, a lot of call viewing in, and no follow-throughs in the actual long positions today,” Layton told CNBC. Still, Leighton said the markets have not ignored the situation in Israel and Ira. “There is already a very large geopolitical risk premium in the market. At this point, we estimate it is around $10 to $12, and that risk premium is for a reason,” he said. “In Iran, there was no actual oil exports or disruptions in oil production, but the market is trading between $10 and $12 higher. The important counterbalance of current crude prices is that the organisation of oil exporters is in the process of increasing oil production, Layton pointed out. It’s really important to help explain why there was no follow-through in terms of fresh, long positions in the market today,” he said. “In many cases, when investors think about trade, they’re not just short-term. [outlook] Being bullish. And there is clearly a higher priced catalyst in that term. But they also need a medium to run prospect to be bullish. …Our 12-month forecast remains at $65 Brent, and we have no idea what to do to change our mid-term and long-term outlook. This is still bearish from these prices. (For a complete list of Jim Kramer’s Charitable Trust stocks, before selling trade with Jim Kramer, he is a subscriber to CNBC Investment Club, and is talking about CNBC TV stocks before running the investment club information above.
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