Equity and commodity markets largely shrugged off geopolitical concerns following Iran’s unprecedented drone strikes on Israel over the weekend.
Although the commodity-heavy FTSE 100 shed 0.45 per cent, other major European markets posted gains. The DAX in Frankfurt gained 0.3 per cent, as did the CAC in Paris. US markets also opened higher.
Oil prices meanwhile were hovering just under $90 a barrel, having touched $92 last week – its highest level in six months.
Analysts doubted whether it would rise much further in the immediate future. “Unless the market faces a real disruption to supply, the risk of an upside spike towards $100 remains limited,” analysts at Saxo said.
Gold continued its strong run, heading up to $2,345, just shy of its record. Gold tends to do well during times of uncertainty.
The relatively muted response came as something of a surprise given the dramatic events over the weekend. On Saturday evening, Iran launched its first-ever strike on Israel in retaliation for a suspected Israeli attack on its consulate in Damascus, which killed several Iranian commanders.
The drone strikes were widely anticipated, contributing to higher oil prices and market jitters last week.
But traders were clearly hopeful that there would be no escalation. The Iranian government said it considers the matter “concluded” while the US government cautioned the Israeli government against escalation.
The Israeli government has so far given little indication that it will retaliate.
“There appears to be widespread relief that Iran’s bombardment of Israel on Saturday was largely rebuffed, apparently relatively easily,” David Morrison, senior market analyst at Trade Nation said.
Still, markets will be paying close attention to developments in the Middle East and particularly how it might impact the global oil supply.
“The question for investors now is whether a line has been crossed in the Middle East that could lead to 1, an escalation in tensions between Iran and Israel and 2, could it lead to a wider conflict that threatens the supply of oil out of the Middle East by disrupting the flow of oil through the Strait of Hormuz?” Kathleen Brooks, research director at XTB said.
