Global markets are wary of Israel-Hamas escalation fears

LONDON, Oct 16 (Reuters) – European stock indexes fell on Monday, but oil prices pared recent gains as cautious markets watched for increasing signs that the financial fallout from the Israel-Hamas war could be decided.

Israeli Prime Minister Benjamin Netanyahu vowed Sunday to “demolish Hamas” as his forces prepare to move into the Gaza Strip after Hamas militants killed 1,300 people in the worst attack on civilians in Israel’s history.

Oil prices rose last week as investors in the world’s top oil-producing region rallied, while U.S. Treasuries and gold rose as traders bought safe-haven assets.

Traders are waiting to see if the conflict spills over into other countries, pushing up oil prices further and dealing a fresh blow to the global economy. They are keeping a particular eye on Iran, which said on Sunday that its armed forces would not engage militarily with Israel, as long as Israel did not attack it, its interests or its citizens.

At 0823 GMT, the MSCI world equity index was down 0.2% on the day (.MIWD00000PUS). Europe’s stock indexes were in the red, with the STOXX 600 down 0.2% (.STOXX) and London’s FTSE 100 (.FTSE) down 0.1%.

Crude oil prices eased after rallying last week. Brent futures were last down 59 cents, or 0.65%, at $90.3 a barrel. US West Texas Intermediate (WTI) crude was down 0.7%, or 59 cents, at $87.06 a barrel.

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“What the market is looking for to improve sentiment will be any kind of bump … and any sense that oil-rich countries are going to get involved will be a catalyst to move stocks,” said Fiona Cincotta, senior market analyst at CitiIndex.

“Any comments from Iran will be given a lot of attention.”

Top US officials warned Sunday that the war could escalate into a wider conflict across the Middle East. US Secretary of State Anthony Blinken arrived in Israel on Thursday and has also visited Qatar, Jordan, Bahrain, the United Arab Emirates, Saudi Arabia and Egypt in an effort to contain the spread of the conflict.

Before the attack by Hamas, market sentiment was driven by the global economy and the idea that the US Federal Reserve plans to raise rates for a longer period of time. With the company’s earnings this week, the narrative has become secondary to geopolitical concerns, Cincotta said.

Benchmark 10-year US Treasury yields rose to 4.6872%, following a fall of more than 8 basis points on Friday amid demand for safe-haven bonds.

European government bonds rose after European Central Bank officials reiterated concerns about inflation. The German 10-year yield rose 4 basis points to 2.779%.

The U.S. dollar index fell slightly, down 0.1% on the day to 106.470. The euro rose 0.2% to $1.0533.

Israel’s shekel falls to eight-year low

Gold pared some of silver’s $63 gain, retreating 1% to $1,911.9 an ounce.

“Ultimately, gold and oil prices are the most important indicators of the risks of the (Gaza) conflict,” Kyle Rhoda, senior financial markets analyst at Capital.com, wrote in a note.

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However, “identifying potential flashpoints and gaming-out scenarios is more challenging,” Rota said.

Reporting by Elizabeth Howcroft in London, additional reporting by Kevin Buckland in Tokyo; Editing by David Evans

Our Standards: Thomson Reuters Trust Principles.

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