Israel's strikes on Iran rock Wall Street
Oil surged, stocks fell but the dollar strengthened as investors sought safety on Friday following Israel's strike on Iranian nuclear and military targets. Thursday's attack raised the risk of war between the two countries and broader instability in the Middle East.
The S&P 500 fell 0.7 percent as markets open, while the Nasdaq slid 1.2 percent. It comes as stock markets have only just recovered from a 20 percent slump following Trump's tariff announcements in April.
The dollar jumped 0.6 percent from the three-year low it hit on Thursday. Government bonds and the dollar often rise when investors feel less inclined to take risks. U.S. benchmark crude oil rose by $4.73, or 6.9 percent, to $72.77 per barrel, its biggest gain since the early days of Russia's attack on Ukraine more than three years ago.
Oil prices are likely to rise in the short term but the key question is whether exports are affected, said Richard Joswick (pictured), head of near-term oil at S&P Global Commodity Insights. 'When Iran and Israel exchanged attacks previously, prices spiked initially but fell once it became clear that the situation was not escalating and there was no impact on oil supply,' he told the Associated Press.
'Oil price risk premiums could rise sharply if Iran conducts broader retaliatory attacks, especially if on targets other than in Israel,' Joswick said. China is the only customer for Iranian oil but could seek alternative supplies from Middle Eastern exporters and Russia, he explained.
A boost in oil prices will benefit US oil producers who have recently warned that prices were so low they would have to decommission rigs. However, if oil prices continue to rise it could fuel inflation complicating the Federal Reserve's challenges.
'This goes against what central banks were expecting for oil prices and could potentially change their scenario by heating up inflation and slowing growth,' Alexandre Hezez, chief investment officer at Group Richelieu told Bloomberg.
The latest inflation report showed inflation rose less than expected , giving stocks a boost. Prices rose 2.4 percent in May compared to the same time last year, a slight increase on the month before , when prices rose 2.3 percent.
'Longer term there's still concerns about Trump's tariffs being inflationary but this report was better than expected and it fuels hope that the Federal Reserve will be able to step in with rate cuts later on this year,' Robert Pavlik, senior portfolio manager at Dakota Wealth said of Wednesday's report.
Some analysts suggest tariffs are feeding into inflation less than expected because businesses are reluctant to pass on price rises to their customers and swallowing the costs themselves. 'Ultimately, if tariff rates are up, and core goods prices aren't up by as much as the consensus thought it implies more margin squeeze at retailers and less price pass through,' Neil Dutta from Renaissance Macro told Bloomberg.
