Stocks climb, oil dips as Middle East concerns in check

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[April 15, 2024]  By Marc Jones

LONDON (Reuters) - Europe's main share and currency markets started the week modestly higher while oil and bond prices dipped, as investors kept Middle East concerns in check after Iran's weekend attacks on Israel.

Tehran's offensive involved more than 300 missiles and drones, and was the first on Israel from another country in more than three decades, but having sold off sharply on Friday and with major powers urging restraint, Monday's market moves showed an element of relief.

Oil prices, which have risen 10% as the tensions have built up over the last month, dropped 1%, Israel's shekel rose 1% and the pan-European STOXX 600 climbed 0.3%, albeit led by defence stocks.

Gold, which has been hitting record highs for weeks, rose 0.3% but the dollar and the ultra-safe government bonds [GVD/EUR] that money managers often turn to when geopolitical tensions mount, were all lower.

Close Brothers Asset Management's Chief Investment Officer Robert Alster said the hope was that U.S. and Gulf diplomatic efforts would now prevent further serious escalation of the Middle East troubles.

"There is a general belief (among investors) that it isn't going to escalate," Alster said, highlighting that oil prices hadn't breached their September highs of $96 a barrel. "There has been a tit-for-tat and hopefully now we move on."

There is also another busy week of economic data and company earnings in store and the International Monetary Fund's spring meetings, which can steer the global narrative, get underway too.

One of those data points is U.S. retail sales later. The dollar index, which measures the currency against a basket of six others, was steady at 105.92, just below Friday's 5-1/2 month high of 106.11.

It did though scale a fresh 34-year high against the Japanese yen on growing expectations that sticky inflation will keep U.S. interest rates higher for longer and that Tokyo hasn't rushed to intervene in FX markets yet.

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The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, April 12, 2024. REUTERS/Staff/File Photo

WAIT AND SEE

U.S. stock futures ticked higher, after the heavy selloff on Wall Street on Friday that had also been fuelled by dwindling rate cut hopes and a round of disappointing bank earnings. [.N]

MSCI's broadest index of Asia-Pacific shares outside Japan had fallen back as much as 0.7% overnight though as a sense of nervousness swept over the region. Japan's Nikkei slid 1%, while Australia's S&P/ASX 200 index lost nearly 0.5%.

The threat of open warfare erupting between arch Middle East foes Iran and Israel and dragging in the United States has left the region on tenterhooks. U.S. President Joe Biden warned Israeli Prime Minister Benjamin Netanyahu the U.S. will not take part in a counter-offensive against Iran.

Israel said "the campaign is not over yet".

Oil prices showed traders had largely priced in a retaliatory attack from Iran, which could lead to more strictly enforced sanctions on Iranian oil. That saw Brent crude futures peaking at $92.18 a barrel last week, the highest level since October.

Monday's 1% drop left Brent back below $90 per barrel, U.S. West Texas Intermediate crude futures at just under $85 a barrel while gold was a touch higher at $2,351 an ounce. [O/R]

"It is something of a wait and see now for markets as we wait to see how Israel reacts and how Iran's proxies respond," said UBS Global Wealth Management multi-asset strategist Kiran Ganesh said.

(Reporting by Marc Jones; Additional reporting by Rae Wee in Singapore; Editing by Susan Fenton)

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