(Bloomberg) — US stock futures staged a rebound and oil prices fell as investors grew confident that the conflict between Israel and Iran will remain contained.
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S&P 500 contracts rose 0.5% as dip-buyers moved in following a pullback in the US benchmark of more than 1% on Friday. European and Asian stocks also advanced. Brent crude dropped 0.8% after initially spiking on the back of weekend attacks between the two arch adversaries.
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Gold slipped 0.3% from an all-time high. Treasuries retreated on concerns that persistently higher energy prices could stoke inflation, with the 10-year yield rising three basis points to 4.43%.
The outbreak of hostilities between Israel and Iran on Friday disrupted the momentum that had driven the S&P 500 back near record levels and reversed April’s tariff-fueled losses. While markets initially adopted a cautious, risk-off stance to assess how the conflict might unfold, sentiment improved on Monday as investors grew more confident that the attacks were unlikely to draw in more parties.
“The situation in the Middle East is not making the market shake, and it’s likely it will stay that way as long as there is no major escalation,” said Enguerrand Artaz, a fund manager at La Financière de l’Echiquier. “Markets are riding strong momentum. The mood overall is still very much about buying the dip.”
Oil gave up another sharp gain on Monday as ongoing attacks have so far spared key export infrastructure. There’s also been no blockage of the vital Strait of Hormuz, the narrow waterway that handles roughly a fifth of the world’s daily crude shipments.
“The market currently anticipates a limited conflict, though there is little indication that hostilities will end quickly,” said Jochen Stanzl, chief market analyst at CMC Markets. “It is expected that fighting will continue unabated this week, albeit on a limited scale.”
Some strategists were more circumspect and cautioned that the S&P 500 remained vulnerable, especially as valuations looked stretched. The broader the Middle East conflict becomes and the longer it lasts, the more negative it will be for US stocks, said RBC Capital Markets LLC’s team, led by Lori Calvasina.
In a worst-case scenario, they see the S&P 500 returning to its April lows if the attacks drive up energy prices. And in a less severe case, the index may fall about 13%, the strategists said.
Federal Reserve Chair Jerome Powell will likely highlight increased uncertainty when policymakers meet this week about interest rates this week, noted Mohit Kumar, chief European strategist at Jefferies International.
“The tone would likely be that there is no hurry to cut rates, but the Fed will be ready to respond if economic conditions so warrant,” Kumar said.
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Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.5% as of 7:23 a.m. New York time
Nasdaq 100 futures rose 0.6%
Futures on the Dow Jones Industrial Average rose 0.4%
The Stoxx Europe 600 rose 0.3%
The MSCI World Index rose 0.2%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.3% to $1.1583
The British pound rose 0.1% to $1.3590
The Japanese yen was little changed at 143.99 per dollar
Cryptocurrencies
Bitcoin rose 1.8% to $106,628.7
Ether rose 3.7% to $2,597.31
Bonds
The yield on 10-year Treasuries advanced three basis points to 4.43%
Germany’s 10-year yield was little changed at 2.54%
Britain’s 10-year yield was little changed at 4.55%
Commodities
West Texas Intermediate crude fell 1% to $72.24 a barrel
Spot gold fell 0.3% to $3,422.34 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Julien Ponthus, Sagarika Jaisinghani and Alice Gledhill.
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