Mario Tama
Stock index futures were slightly higher at the start of trading on Wall Street Sunday, while oil also saw a muted reaction following Iran’s attack on Israel.
S&P futures (SPX) +0.3%, Nasdaq 100 futures (NDX:IND) +0.3% and Dow futures (INDU) +0.2% saw early gains.
The 10-year Treasury yield (US10Y) rose 5 basis points to 4.55% in a reversal of the risk-off move seen on Friday.
WTI crude (CL1:COM) -0.1% and Brent crude (CO1:COM) -0.1% were down slightly.
“The potential Israeli response to Iran’s attack is highly uncertain and will likely determine the extent of threat to regional oil supply,” Daan Struyven, senior global economist at Goldman Sachs, wrote in a note. “On the one hand, there are arguments to suggest any response may be limited. The well-telegraphed and relatively limited nature of Iran’s attack suggests it was calibrated to be a contained retaliation for the Israeli bombing of its embassy in Damascus on April 1 and is not intended to be escalatory, consistent with public statements made by Iranian officials.”
“In addition, international efforts are under way to limit the risk of a military escalation, with President Biden emphasizing the diplomatic nature of the response he plans to coordinate with fellow G7 leaders,” he said. “On the other hand, this is the first direct attack on Israeli soil by Iran.”
“Not to respond forcefully to such an attack is likely to be viewed as setting a dangerous precedent and would be inconsistent with Israel’s previous modus operandi and Prime Minister Netanyahu’s recent statement ahead of the anticipated Iranian attack of ‘whoever hurts us, we hurt them.'”
“While we estimate that oil prices already reflect a $5-10/bbl risk premium from downside risks to supply, we continue to see significant portfolio hedging benefits from investing in oil against negative geopolitical shocks,” Struyven said.