Oil prices rose on Monday and airline shares fell as markets reacted to the surprise attack on Israel by the militant group Hamas.
The Israeli prime minister, Benjamin Netanyahu, said Israel was embarking on a “long and difficult war” against Hamas. The death toll has risen above 1,100 since fighting started on Saturday, and is expected to rise further.
Investors on Monday morning appeared to be pricing in the prospect of more instability in the Middle East.
Oil prices jumped by 3% on Monday morning. Futures prices for Brent crude oil, the North Sea benchmark, rose to $89 (£73) a barrel at one point, recovering some of the losses of the last week.
London-headquartered FTSE 100 rivals BP and Shell rose by 3% and 2.7% respectively, while on the FTSE 250 Harbour Energy was up2%.
Airlines were among the biggest stock market fallers on Monday morning, with international air travel already affected by the war. The share price of British Airways owner International Airlines Group was down 3.4%, while easyJet fell by 4%. The Paris-listed Air France-KLM lost 4.5%, and Germany’s Lufthansa lost 3%.
Several airlines have stopped flights to Tel Aviv’s Ben Gurion airport, Israel’s main international travel hub. They included the US carriers United, Delta and American, Air Canada, Germany’s Lufthansa and Air France. British Airways adjusted departure times and said customers can change their travel dates free of charge, Bloomberg reported. About 16% of flights into and out of Ben Gurion on Monday were cancelled, according to the data company FlightAware.
BAE Systems rose by 4.4%, making it the biggest riser on the FTSE 100. The company makes a wide range of weaponry, from tanks and fighter jets to ammunition and missiles. The German tankmaker Rheinmetall rose by 6.2%, while the Italian defence and aerospace company Leonardo gained 5.7%.
Gold prices rose by 1%, as investors bought the traditional safe-haven asset.
Israel’s central bank stepped in to support its currency after the shekel fell to a near-eight-year low against the US dollar in early trading. The Bank of Israel said it will sell up to $30bn of foreign currency in the open market to maintain stability, helping the shekel to recover slightly. The currency was already under pressure because of a dearth of international investment after Netanyahu’s controversial plan to allow Israel’s parliament to overrule its supreme court.
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An index tracking the biggest companies on the Tel Aviv stock exchange fell by 6.5% on Sunday, before gaining slightly on Monday.
Analysts at Deutsche Bank led by Jim Reid wrote in a note to clients that “geopolitical risk is elevated at the moment with the Ukraine conflict, the US/China tensions and now those resurfacing in the Middle East.”
“How Saudi Arabia, Iran, and the US get drawn into this will be key,” they wrote. “Geopolitical risk doesn’t tend to linger long in markets but there are many second order impacts that could come through in the weeks, months and years ahead from this weekend’s developments.”