Israel-Hamas war: The major risk for markets

In the week after a war broke out in the Middle East, the price of Brent crude oil lifted 3.6 per cent to above US$90 a barrel and high bond yields came off a bit, but major equity markets barely moved.

“I think the initial market reaction was for it to pre-position for a worsening in conditions but not to go all the way,” central bank advisor Sean Keane told Markets with Madison.

He said there was potential for the conflict to worsen, which would cause more shock across commodity, bond and equity markets.

“The principal risk is that this gets wider.

“If Iran are involved then potentially you’ve got a much bigger issue where you bring in all the border states.”

Globally, Keane suggested Russia and China could be indirect beneficiaries of the war, as the US diverted its attention from Ukraine and Taiwan.

“There are winners and losers on this.”

He said the scale of geopolitical risk was not the worst he’d seen, but what was new with this conflict was the level of Government debt in the US as it upped its military aid response.

“They’re spending like it’s a wartime economy, and perhaps it will be.

“At the moment their deficit is rising at about US$1 trillion a year.”

Watch Sean Keane discuss how central banks may respond to this conflict and fiscal challenge in today’s episode of Markets with Madison above.

Get investment insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.

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Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.