Asian markets experienced significant losses on Friday, October 20, 2023, as escalating tensions in the Middle East led to surging oil prices. The ongoing Israeli bombing campaign in Gaza, in response to Hamas militants causing over 1,400 fatalities, has led to fears of a wider regional conflict, particularly with the potential involvement of Iran if Israel initiates a land offensive.
Amid these tensions, oil prices have seen a considerable increase. Vandana Hari from Vanda (NASDAQ:VNDA) Insights noted that the high tensions could potentially lead to further spikes in crude oil prices. This surge in oil prices is occurring against the backdrop of an intercepted attack by a US Navy ship in the Red Sea. The Pentagon reported that missiles and drones from Houthi rebels in Yemen, backed by Iran and potentially targeting Israel, were intercepted, adding fuel to the ongoing Israel-Hamas conflict.
In addition to the geopolitical pressures, traders are grappling with high US interest rates as the Federal Reserve battles inflation. Despite Chair Jerome Powell and his policy board colleagues suggesting no rate hike at their next meeting, future tightening is possible due to labor market tightness indicated by lower than expected weekly jobless claims. This has resulted in the yield on the 10-year US Treasury note rising above five percent for the first time since 2007, further impacting US markets.
Meanwhile, gold prices have risen for a third consecutive session due to increased safe-haven demand amidst these Middle East tensions. Spot gold rose 1.1% to $1,967.70 per ounce, and US gold futures gained 0.6% to $1,980.60. However, Daniel Ghali from TD Securities warns of an upcoming buying exhaustion in the market.
On a diplomatic front, British Prime Minister Rishi Sunak and US President Joe Biden visited the region expressing concern over Gaza's plight. The international community watches closely as the situation continues to develop, affecting markets globally.
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