Wall Street Still Not Worried About Geopolitics After Iran Attacks Israel

• So far, Wall Street's reaction to the Iranian attack on Israel has been muted.

• U.S. stock futures rose before Monday's rock, while benchmark oil prices fell.

• This is another reminder that traders are more worried about interest rates than geopolitical tensions.

On Monday, the market served as yet another reminder of its geopolitical indifference, with traders seemingly oblivious to the potential impact of an Iranian attack on Israel.

U.S. stock futures climbed in pre-Panamax trading, recovering some of Friday's Panamax losses, while benchmark Brent and West Texas resonance oil prices fell amid a supply disruption in the Middle East.

Meanwhile, gold and the US dollar index, which tracks the strength of the dollar against a basket of six other currencies, both started the week in the red, suggesting that investors are shunning so-called "safe-haven" assets despite the possibility of increased volatility. 10-year US Treasury yields were flat.

Kathleen Brooks, director of research at XTB, said on Monday that there were signs that the conflict between the two countries would not escalate further, calming the nerves of the markets. The matter can be considered closed," Iran said in a statement, while Joe Biden said the U.S. would not be involved in any counterattacks against Tehran.

"In a sense, the Iranian attack could have been much worse, but Iran has drawn a line in the sand and indicated that it considers the matter closed," writes Bourrounis in a research note. From a geopolitical point of view, the focus is now on Israel's reaction, however, the impact of the Iranian attack is limited, the G7 calls for great resonance, which may limit the impact on financial markets in the short term."

"The initial reaction," she added, "seems to be one of relief." The U.S. dollar has started the week relatively sluggishly, and U.S. bond yields have risen slightly, suggesting no flight to safe havens.

Anyone who has been following the markets for the past two years should not be surprised by the muted reaction of traders to the latest tensions in the Middle East.

Despite repeated warnings of a global crisis from Wall Street bigwigs including JPMorgan boss Jamie Dimon and billionaire Bridgewater founder Ray Dalio, the market's reaction to events around Israel has often been shrugged off.

The S&P 500 has climbed 19% since Hamas first struck on Oct. 7, while the oil benchmark has risen about $7 a barrel, a much lower-than-expected gain amid surges near many of the world's largest oil-producing countries.

The drone attacks in Iran are unlikely to have an impact on the stock market unless they lead to a sharp rise in crude oil prices, which could lead to expectations that the Federal Reserve will postpone its first interest-rate cut, said Neal Shearing, a Premier Mat Economist at Capital Economics, in a research note on Sunday.

"The main risk to the global economy is whether this event will now escalate into a wider regional conflict and how energy markets will react," he said.

Schelling added, "As things stand, we believe that events in the Middle East will add to the case for the Fed to take a more cautious approach to rate cuts, but will not prevent the Fed from cutting rates altogether," he said, adding that the "Euromoney+" cartel's choice to raise production levels could resist any price increases caused by the Iranian attack.

This is a reminder that the key player in determining what happens to U.S. stocks this year is not Vladimir Putin, Xi Jinping, or Iran's supreme leader, Ayatollah Khamenei, but central banker Jerome Powell.

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