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A full-blown war between Israel and Hamas has further stoked volatility in global markets, and one Wall Street firm said it could drive investors away from risk assets, mimicking the climate surrounding the Russia invasion of Ukraine in February, 2022. “The conflict’s course is uncertain, but will very likely escalate, possibly contributing to a significantly risk-off global environment over the next 1-3 months,” Dan Alamariu, chief geopolitical strategist at Alpine Macro, said in a note. “Think of Russia’s invasion of Ukraine in 2022.” U.S. stocks traded lower in early trading Monday as mounting geopolitical tensions added uncertainty to an already fragile market already coping with stubborn inflation and surging interest rates. When Russia’s war in Ukraine began last year, the S & P 500 suffered 11 down weeks in 17 from February to May, including a seven-week losing streak. That also coincided with the Federal Reserve’s fastest tightening of monetary policy in 40 years and the subsequent collapse of Silicon Valley Bank and First Republic Bank. .SPX mountain 2022-01-01 S & P 500 Oil prices jumped Monday following the latest Middle East violence, with West Texas Intermediate crude oil futures climbing 3.7%, trading above $85 a barrel. Alpine Macro said volatility in the energy market could drag on if the conflict escalates further. “Short-term, the risk means prices should increase in the next few days and weeks,” Alamariu said. “This could be sustained longer-term if the conflict deepens/expands.” In the most extreme scenario, where Israel strikes Iran’s nuclear facilities, oil prices could soar above $150 per barrel, the firm said. In retaliation for the Hamas strikes into Israel on Saturday, Israeli Defense Minister Yoav Gallant mobilized 300,000 reservists and ordered a “complete siege” of the Gaza Strip, suspending all supplies of electricity, food and fuel from Israel to the enclave. “Israel’s retaliation strategy is still TBD, but expect a very strong response, lasting weeks, if not months, and thus heightened geopolitical and market volatility,” Alamariu said.
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