Market snapshot: global markets rattled by Israel strike

Global markets are being rattled by an escalation of Middle East tensions as Israel attacked Iran’s nuclear programme overnight.

The news came after the close on Wall Street on what was otherwise a positive day, but even at this early stage Dow Futures are heading south in response to the attack. There was an inevitable rush to haven assets such as gold following the assault, while the oil price itself gained by more than 7% overnight, all but wiping out its losses for the year. Of particular concern is the likelihood of retaliatory measures which, if aimed at the Strait of Hormuz where around 20% of global flows are handled, would further potentially constrict supply.

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Prior to this development, US markets edged higher as the appetite for mega-cap technology stocks showed further signs of return. Sentiment was helped by a fourth-quarter update from Oracle Corp (NYSE:ORCL), which sent its shares more than 13% higher, as it reported better than expected top and bottom line results. Of equal promise were the accompanying comments on the outlook for cloud infrastructure, which could rise by over 70% in 2026 due to AI demand.

The risk-on approach from investors continued, despite a 5% drop in the shares of Boeing Co (NYSE:BA) following an air crash in India, with the Producer Price Index showing limited wholesale inflation. A rise of just 0.1% following a decline of 0.2% the previous month came in below expectations, helping to lower bond yields as it seemed to echo some lessening pressure on consumer inflation as reported earlier in the week. The Federal Reserve meets next week, where there is a virtually unanimous consensus that interest rates will be unchanged, with the current estimates touting September as the earliest time that the Fed will move next.

The sprightly trade on Wall Street left the Dow Jones up by 1% and the Nasdaq by 1.8% in the year to date, with the S&P ahead by 2.8% and less than 2% away from its record high. However, these gains will be under threat as trading resumes later, with current futures prices pointing to declines of anywhere between 1.4% and 1.7% as investors continue to monitor Middle East developments.

Asian markets were the first to react to the news overnight, with declines across the board at the open. However, losses were contained as some investors judged the region to be less affected by the escalating tensions given their more limited exposure, as well as the fact that there is an increasing tie-up between the region and the likes of the United Arab Emirates and Saudi Arabia for supplies.

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UK markets also succumbed to the geopolitical threats, although there was inevitably some strength in the oil majors, with BP (LSE:BP.) and Shell (LSE:SHEL) each adding more than 3% at the open. There was also demand for defence stocks such as BAE Systems (LSE:BA.), while the further surge in the gold price also lifted the likes of Endeavour Mining (LSE:EDV) and Fresnillo (LSE:FRES). This was more than offset, however, by a sharp descent for the airlines, hit by the double whammy of higher fuel costs as well as potentially damaged demand resulting from tensions in the Middle East region.

As such, the FTSE 100 was unable to build on the record closing high achieved yesterday, although the index remains ahead by more than 8% so far this year. In addition, and despite the initial reaction to the news overnight, the premier index could attract some renewed buying interest given the stability and maturity of many of its constituents, as well as its exposure to sectors such as defence and the financials, which have all been strong performers of late. Global investors have been seeking alternatives given the volatile backdrop and for the time being the likes of the FTSE 100 seem to fit the bill.