For now, oil has reacted directionally as many would suspect, although the extent of its climb remains modest given the political stakes.
U.S. crude hovered about $87 per barrel on Monday – marginally off highs hit late last week, still down some 8% from late September peaks, and little changed year-on-year.
Yet the extent to which the backup in oil prices over recent months can impact wider economic sentiment was clear from the University of Michigan‘s household survey on Friday. It showed a drop in confidence this month alongside a sharp upward tilt in inflation expectations.
But with U.S. Treasury bonds and the dollar also tending to benefit from Middle East anxieties, the picture becomes messy and suggests a more general retreat from risky assets like stocks is still the playbook on any rise in geopolitical heat.
As with prior influential political narratives, weekends tend to be nervy periods when markets are closed or illiquid and Fridays a time for battening down hatches just in case. That appeared to be the case last week as oil prices, gold, the dollar and Treasuries gained into the close while stocks fell back.
Wall Street stock futures and 10-year Treasury yields were marginally higher into Monday’s open, however, and the dollar and stock volatility gauges ebbed a touch.
The tension barrels into a week that would otherwise be dominated by the third-quarter corporate earnings season, as a mix of banking behemoths and mega cap tech stocks report through the week.
