Next steps key to market impact of Israeli strike, analysts say
People gather in the street near an emergency vehicle in the aftermath of Israeli strikes in Tehran. PHOTO: REUTERS
Next steps key to market impact of Israeli strike, analysts say
The key question for markets following Israel's strike on Iran is whether the fallout can be contained, say strategists.
Israel conducted an air strike in Iranian territory, with Defence Minister Israel Katz calling it a 'preemptive strike'.
The tension weighed on markets: Oil surged, Asian stocks and US equity futures fell, and the dollar reversed earlier losses as traders dumped risk currencies.
Here are what market watchers are saying:
Charu Chanana, chief investment strategist in Singapore at Saxo Markets
According to Ms Chanana, headlines of an Israeli air strike inside Iran have reignited the geopolitical-risk premium.
'Whether this risk-off tone sticks now depends on the next 24 to 48 hours. If Tehran's response is limited and energy flows remain uninterrupted, experience suggests the premium can bleed out fairly quickly,' she said.
'But any sign of retaliation or supply disruption would keep volatility elevated and push oil and safe-haven assets higher.'
Billy Leung, investment strategist in Sydney at Global X ETFs
Key for investors now is whether the latest attacks stay contained, providing traders opportunities to fade market moves, said Mr Leung.
'It's a sharp reversal from last night's bullishness, when tech optimism, soft inflation, and light positioning had the market leaning risk-on – a direct Israeli strike on Iran cuts through that narrative instantly,' he said.
'This mirrors past flashpoints like the Soleimani strike in 2020, tanker attacks in 2019, where we saw the same initial reaction: oil bid, Treasuries and Swiss franc stronger.'
The key now is whether this stays contained – history shows markets often fade the shock if escalation is limited, he added.
Wei Liang Chang, a Singapore-based macro strategist at DBS Group Holdings Ltd.
Mr Chang said safe havens such as the yen and US Treasuries will remain bid as markets watch for any signs of escalation of tensions between Israel and Iran.
'There could be a knee-jerk reaction in markets, as Middle East geopolitical risks return to to the fore,' he said, adding that markets will assess the impact of the strike and watch for risks of an escalation.
'Risky assets could see a pare back, while safe havens such the yen and US Treasuries could be bid.'
Matthew Haupt, portfolio manager in Sydney at Wilson Asset Management
'Seeing classical risk off moves with bonds and gold bid, along with a spike in oil. Quite often these moves are faded after the initial shocks,' said Mr Haupt.
'What we are watching now for is the speed and scale of the response from Tehran, that will shape the duration of the current moves.' BLOOMBERG
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