#IsraelIranConflict Can the markets contain the repercussions of geopolitical escalation?
Following the airstrike carried out by Israel within Iranian territory, which the Israeli Defense Minister described as a 'preemptive strike', global markets face a critical challenge: Will they succeed in containing the repercussions of this sudden geopolitical escalation?
These tensions immediately cast a shadow over market indicators, as oil prices rose, Asian stocks and U.S. stock futures declined, and the dollar regained its previous losses as investors increasingly leaned towards abandoning high-risk assets.
The coming hours will determine the market's fate: Scenarios for the Iranian response.
Analysts believe that the next few days will be pivotal in determining the direction of the markets. News headlines concerning the Israeli strike have reignited geopolitical fears, and the continuation of this cautious mood depends on the nature of Tehran's response in the next 24 to 48 hours.
Scenario One: Limited Containment.
If the Iranian response is limited and energy flows remain uninterrupted, historical experience suggests that the wave of risk may dissipate quickly. In such cases, markets tend to absorb initial shocks and return to their fundamental path.
Scenario Two: Escalation and Fluctuation.
Conversely, any indication of a significant retaliatory response from Iran, or disruptions in oil and gas supplies, will keep volatility levels high. This scenario would push oil prices and safe assets like gold and U.S. Treasury bonds further up, while significantly decreasing high-risk assets like stocks and cryptocurrencies.
A sudden shift in market mood: from optimism to caution.
The Israeli strike marked a sharp turn in market mood, which had been characterized by optimism the night before the attack. Optimism regarding the technology sector and declining inflation was driving the market towards risk, but the direct strike on Iran turned this narrative upside down.
This scenario recalls previous flashpoints such as the assassination of Qassem Soleimani in 2020 and the tanker attacks in 2019, where markets experienced similar initial reactions of rising oil prices and strength in U.S. Treasury bonds and the Swiss franc.
The key now lies in how these developments are contained; history shows that shocks often fade if the escalation is limited.
Investments are shifting towards safe havens: Key indicators.
Markets are closely watching for any additional indicators of escalating tensions, driving investors diligently towards safe-haven assets. This risk-averse behavior means:
The Japanese yen and U.S. Treasury bonds: They are expected to continue attracting buying flows.
High-risk assets: May witness a significant decline as investors shy away from them.
Gold: It is a key indicator for hedging against geopolitical risks and potential inflation, and it will continue to attract interest.
Oil: Its movements remain directly linked to supply expectations from the region, and any threat to the strait will lead to additional increases.