Israel Highway Fight vpx 4
Video shows guns fired in the middle of a highway in Israel
00:41 - Source: CNN
New York/Hong Kong CNN  — 

Oil prices surged and the Israeli currency fell at the start of the week as investors reacted to war between Hamas and Israel.

US stocks, which soared Friday on a surprisingly strong American job market report, staged a comeback Monday afternoon after falling earlier in the trading session.

The Dow rose 197 points, or 0.6%. The S&P 500 added 0.6% and the Nasdaq Composite rose 0.4%.

Stocks initially fell Monday morning as global investors feared the conflict in Israel could spill over to the wider region, and that prolonged tensions in the Middle East could hurt the fragile global economic recovery. But the midday reversal suggests that Wall Street is taking a wait-and-see approach for now to the risks the conflict in the Middle East could pose to financial markets.

“Right now there are a lot of ‘maybes’ and ‘ifs’ — and a real lack of clarity,” said David Donabedian, chief investment officer at CIBC Private Wealth US, adding that “markets will continue to look at everything it usually looks at,” including climbing bond yields and the Federal Reserve’s future monetary policy decisions.

Volatility in the oil market

Although Israel is not a major oil producer, escalating tensions in the oil-rich Middle East spooked investors who had been selling off oil in recent weeks.

Inflation, fear of a global economic downturn and a correction to prices that were surging in recent months had sent US oil down from around $95 a barrel in late September to just above $80 last week.

US oil prices settled at $86.38 a barrel on Monday, while Brent crude futures, the global benchmark, climbed to $88.15 a barrel. Both are well below their recent highs.

Israel formally declared war on Hamas Sunday after the Islamist militant group launched a deadly surprise assault Saturday.

Officials say at least 900 people have died in Israel, with more than 550 Palestinians killed.

“With the Israeli government warning of a long and difficult war, there are concerns that deep and incessant retaliative strikes on Gaza could potentially bring Iran into the conflict and have an impact on the flow of energy in the region,” Susannah Streeter, head of money and markets at Hargreaves Landsdown, wrote in a note.

Israel intervenes to support shekel

On Monday, the Israeli shekel weakened to 3.92 to the US dollar, its worst level since 2016, before edging up slightly.

Israel’s central bank said it would sell up to $30 billion worth of foreign currencies to stabilize the currency and to “provide the necessary liquidity for the continued proper functioning of the markets.”

In a statement, the Bank of Israel said it would provide an additional $15 billion of support if needed, saying it would “continue monitoring developments, tracking all the markets, and acting with the tools available to it as necessary.”

Global markets weigh impact of the conflict

European stocks also fell at the open Monday as traders digested the news, then steadied a little, with France’s CAC 40 index falling 0.6%, while Germany’s DAX index dipped 0.7%. London’s FTSE 100 inched up 0.03%, propped up by gains in the shares of oil companies.

In Asia, initial reaction among investors was mixed.

In mainland China, the Shanghai Composite slipped 0.4% after it reopened following a holiday week. Meanwhile, Australia’s S&P/ASX 200 ended 0.2% higher.

Hong Kong’s Hang Seng index ticked up 0.2% when trading resumed following a morning suspension due to a typhoon, while markets in Japan and South Korea were closed for holidays.

The key question for markets now “is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia,” analysts at ANZ wrote in a report Monday.

“Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil price consequences. But higher volatility can be expected.”

As stocks settle after the trading day, levels might change slightly.

— Robert North and Krystal Hur contributed to this report.