Israel strike hits crude market

05:01 |

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Morning Bid

What matters in U.S. and global markets today

By Anna Szymanski, Editor-In-Charge, Reuters Open Interest

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Global equity markets were rattled on Friday and oil prices shot higher after Israel conducted a military strike on Iran, pushing investors toward safe havens such as gold and the Swiss franc. Investors have typically shrugged off Middle East tensions in recent years, but this latest move has the potential to be a game changer in the region.

I'll provide a quick overview of the market reactions below and then provide some weekend reading suggestions from Mike Dolan.

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Today's Market Minute

On Friday, after two decades of continually raising the alarm and urging other world leaders to act, Netanyahu finally decided to go it alone, authorising an Israeli air assault aimed, Israel says, at preventing Iran from obtaining weapons of mass destruction.
World stock markets tumbled on Friday and oil prices surged as Israel launched its strikes, sparking a rush into safe havens such as gold, dollar and Swiss franc.
Rescuers searched for missing people and aircraft debris in charred buildings in Ahmedabad on Friday after more than 240 people were killed in an Air India Boeing 787 crash, and as local media reported that India was considering grounding the airline's 787 fleet for safety checks.
Israel's strikes on Iran have raised the prospect of global oil prices hitting $100 a barrel. If Tehran seeks to escalate the conflict by retaliating beyond Israeli borders, it could seek to choke off the Strait of Hormuz, the world's most important gateway for oil shipping, writes ROI Energy Columnist Ron Bousso.
At the Federal Open Market Committee meeting next week, investors will scrutinize all communications for any sign that the recent softening in U.S. inflation could be enough to nudge policymakers closer to cutting interest rates. Read the latest from ROI Markets Columnist Jamie McGeever.

Israel strike hits crude market

Israel launched widescale strikes against Iran on Friday, saying it targeted nuclear facilities, ballistic missile factories and military commanders during the start of a prolonged operation to prevent Tehran from building an atomic weapon.

Alongside extensive air strikes, Israel's Mossad spy agency led a series of covert sabotage operations inside Iran, Axios reported, citing a senior Israeli official. These operations were aimed at damaging Iran's strategic missile sites and its air defence capabilities.

Iran launched about 100 drones towards Israeli territory in retaliation, many of which have already been intercepted, according to an Israeli military official.

U.S. Secretary of State Marco Rubio called the Israeli offensive a "unilateral action" and said that Washington was not involved.

Market reaction was swift. Crude prices jumped on Friday, amid fears that Israel's strike could spark additional Iranian retaliation that could disrupt oil supplies.

Brent crude futures hit an intraday high of $78.50 per barrel, the highest since January 27, before settling back down around $74. Meanwhile, U.S. West Texas Intermediate crude reached a high of $77.62, its highest level since January 21, before settling back above $73 a barrel.

A key investor concern now will be whether the latest developments will cause Iran to disrupt transit in the Strait of Hormuz. About a fifth of the world's total oil consumption passes through the strait, or some 18 to 19 million barrels per day (bpd) of oil, condensate and fuel.

As geopolitical tensions rose, Gold climbed as high as $3,444.06 per ounce, bringing it close to the record high of $3,500.05 from April.

"Traders are now on edge over the prospects of a full-blown Middle East conflict," said Matt Simpson, a senior market analyst at City Index. "That will keep uncertainty high and volatility elevated."

Weekend reading suggestions

Here are some articles away from the day-to-day headlines that you may find interesting.

FED FOOTNOTE: Speculation about President Trump's willingness and ability to remove Federal Reserve chair Jerome Powell has stoked concerns about Fed independence all year, though a recent Supreme Court ruling seemed to clear up the issue. But writing on the Project Syndicate site, Professor Barry Eichengreen argues that the footnote in the court ruling that supposedly protects the Fed came with no legal basis. "The note reads like a ChatGPT hallucination," he wrote, adding "arbitrarily exempting the Fed opens the door to arbitrarily not exempting the Fed." Advocates of Fed independence should be worried, he concluded.
G6 RUSSIAN SANCTIONS: Most G7 countries look set to tighten sanctions on Russia and push for a lower Russian oil price cap at next week's summit in Canada regardless of U.S. objections, according to Reuters sources. Earlier this month Brookings economists Robin Brooks and Ben Harris published a detailed analysis of why this approach was workable and makes sense.
SELF DRIVERS: Reuters' Norihiko Shirouzu shows how BYD shook up China's smart-EV industry earlier this year by offering its 'God's Eye' driver-assistance package for free, undercutting Tesla's more expensive technology.
SPIES AND CRYPTO: At a time when Europe is in a heightened state of alarm over Russia's 'hybrid war' of sabotage and espionage, Reuters found that Moscow is increasingly recruiting teenagers and complete novices in its efforts. A Special Report by Reuters' Mari Saito, Anna Koper, Anton Zverev, Filipp Lebedev and Polina Nikolskaya details the case of Canadian teenager Laken Pavan.
COAL AND WATER: April marks the start of the cruelest months for residents of Solapur, a hot and dry district in western India. In peak summer, the wait for water taps to flow can stretch to a week or more. Reuters Krishna N. Das and Sarita Chaganti Singh show that since 2017 a new 1,320-megawatt coal-fired power plant run by state-controlled NTPC has started to compete with residents and businesses for water from the same reservoir.

Today's key chart

Graphics are provided by Reuters.

Friday's gains for Brent crude and WTI futures were the largest intraday moves for both contracts since 2022, when Russia's invasion of Ukraine caused a spike in energy prices. "A key question is whether the Iranian retaliation will be limited to Israel or if the leadership will seek to internationalize the cost of tonight's action by targeting bases and critical economic infrastructure across the wider region," RBC Capital analyst Helima Croft said in a note.

Today's events to watch

University of Michigan June consumer survey (10:00 AM EDT); Canada April manufacturing sales
European Central Bank board member Frank Elderson speaks at IMF-WB annual conference for senior supervisors

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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