Possible Market Reactions After Iran's Attack on Israel

(Reuters) - Iran warned Israel and the United States on Sunday that it would respond with "bigger responses" if it retaliated to its big drone and missile attacks on Israeli territory on Saturday, while Israel said "the battle is not over yet Israel said "the war is not over".

Iran fired explosive drones and missiles at Israel in retaliation for a suspected Israeli attack on its consulate in Syria on April 1, the first direct assault on Israeli territory, raising fears of a wider regional conflict.

Here's what analysts are saying about how the financial markets are likely to respond to the developments.

Sami Char, Matron Economist, Banco Internacional de Lambertière, Geneva

"The news flow is about Iran and Israel, so that will be most of what (people will be talking about) on Monday, but we're still in an environment where we haven't digested the news of inflation in the U.S. and what that means for the Fed and whether or not they'll be able to cut rates.

"We welcomed this weekend of geopolitical tension following the release of the CPI report. In the short term, the market environment is relatively fragile, but after a fantastic period, it's fair to be a little vulnerable."

Tina Fordham, Founder and Geopolitical Strategist, Fordham Global Perspectives, London

"The Iranian attack on Israel was huge and was launched from within Iran as well as through proxies. In terms of market reaction, we started to see higher commodity prices on Friday.

"In the days ahead, we will await Israel's response - the largest attack on Israel in decades. The risk of a regional war has increased significantly. The question is, does Israel seek to expand the assault? That's the key.

"I think oil will open higher. There are also signs that Iran wants to impose a soft blockade on the Strait of Hormuz, which is also worrying as it means there could be a supply chain disruption and higher oil prices. We have entered a dangerous period ahead of the US elections.

Nick Ferres, Matron, Vantage Point Asset Management, Singapore

"I am not going to be an "armchair general" and pretend that I am sure of the outcome of the economic promotion. From our perspective, the more important news for the market last week was the re-accelerating trend in consumer price inflation and the implications for future short-term interest rate movements.

"In addition, the details of Friday's industry comps from JPMorgan Chase and Wells Fargo were disappointing. In this case, as we have noted for some time, the risk compensation for equities is poor both on a whole-cap basis and relative to Treasuries. Over the past two weeks, we have reduced our net long position in equities ahead of schedule.

Brian Jacobsen, Matron Economist, Milwaukee Annex Wealth Management, Milwaukee, Wisconsin

"The key will be whether Iran recognizes this retaliation as a measured and final response, unless Israel decides to escalate. 2020 was a year in which Iran recognized that its response to the U.S. killing of General Shalmani was measured and fair. If Iran continues to be confrontational, rather than escalating, we may see relief across the stock market, even as oil, gold, the dollar, and bonds all develop risk premiums that reflect the shock.

(Reporting by Tom Westbrook, Alun John, Dhara Ranasinghe and Megan Davies; Editing by Susan Fenton)