By Federico Maccioni and Alun John
DUBAI/LONDON (Reuters) -Gulf markets dropped slightly on Sunday, an early indication of investor reaction to Iran’s unprecedented attack on Israeli territory, as investors prepared for trading in most markets to resume Monday, with eyes particularly on oil.
Activity could be choppy, since traders are also digesting last week’s global macro economic data, most importantly hotter-than-expected U.S. inflation.
Saudi Arabia’s benchmark stock index closed down 0.3%, rebounding from an earlier, larger decline while the main Qatari index was down 0.8%.
Shares in Tel Aviv’s broad index rose 0.3%.
Iran launched explosive drones and missiles at Israel on Saturday in retaliation for a suspected Israeli attack on its consulate in Syria, and warned Israel and the United States on Sunday of a “much larger response” if there is any retaliation.
Israel said “the campaign is not over yet”.
“The question becomes does Israel seek to broaden the conflict?, that is the wild card,” said Tina Fordham, geopolitical strategist at Fordham Global Foresight in London, adding she expects oil to open higher on Monday.
Oil prices were already being supported last week by concern of a response from Iran, helping send global benchmark Brent crude on Friday to $92.18 a barrel, the highest since October.
Some haven assets also gained on Friday with traders cautious about being exposed to weekend developments when markets are closed. The benchmark 10-year U.S. Treasury yield, which moves inversely to its price, fell nearly 8 basis points, its biggest daily drop in a month. [US/]
Meanwhile, gold rose above $2,400 an ounce, the latest in a succession of record highs. [GOL/]
Bitcoin, one of the few assets trading around the clock, dropped 8% in around 20 minutes to below $62,000 around 2000 GMT on Saturday roughly when reports emerged that the attack was underway.
It has since regained some ground and was last trading around $64,500.
FRAGILE ENVIRONMENT
Geopolitics will not be the only thing on investors’ minds on Monday however.
“The newsflow is about Iran and Israel, so that is going to be most of (what people will be discussing Monday), but we are still in an environment where we haven’t yet digested the U.S. inflation news and what that means for the Federal Reserve,” said Samy Chaar, Geneva-based chief economist at Lombard Odier on Sunday.
“We came into this weekend of geopolitical stress in the aftermath of the CPI report. It is a fragile market environment in the short term, but after a fantastic period, so it is only fair that there’s a bit of vulnerability.”
Since Iran-backed Hamas attacked Israel on Oct. 7 and Israel invaded Gaza in response, MSCI’s global share index scaled new highs, helped by resilient economic data, particularly in the United States and expectations major central banks will cut interest rates.
Saudi Arabia’s main index has risen by about 20% from Oct. 8. Qatar’s benchmark index is trading at around the same level as Oct. 8.
And with geopolitics just one, hard-to-predict factor to consider, some international investors are focusing on the broader economic picture.
“I am not going to be an armchair general and pretend that I have an edge on how the escalation will play out,” said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
“From our perch, the more important news for markets last week was the trend re-acceleration in consumer price inflation and the implication for the path of future short term interest rates.”
(Reporting by Federico Maccioni in Dubai, Shamsuddin Mohd in Bangalore, Dhara Ranasinghe and Alun John in London, Tom Westrbook in Singapore and Megan Davies in New York. Editing by David Goodman and Angus MacSwan)