By Wayne Cole SYDNEY, March 2 (Reuters) - Oil prices surged on Monday and investors stampeded to the safety of bonds and gold as military conflict in the Middle East looked set to last weeks, just as
Oil jumps, dollar rallies with gold as conflict grips Middle East
Market Reactions to Middle East Conflict
By Sinéad Carew and Alun John
Oil and Gas Prices Surge
NEW YORK/LONDON March 2 (Reuters) - Oil and gas prices surged while the dollar and safe-haven gold rallied on Monday as the U.S.-Israeli air war against Iran widened and looked set to last for weeks, prompting worries that it could upend a global economic recovery and perhaps reignite inflation.
In response, global equity indexes underperformed U.S. stocks and Treasury yields rose on inflation fears.
Oil futures settled sharply higher after the Israeli and U.S. strikes on Iran and retaliation by Tehran forced shutdowns of oil and gas facilities across the Middle East and disrupted shipping in the crucial Strait of Hormuz, while investors worried about how long the war would last.
U.S. crude prices settled up 6.28%, or $4.21, at $71.23 a barrel while Brent settled at $77.74 per barrel, up 6.68%, or $4.87.
Impact on Global and U.S. Equity Markets
MSCI's gauge of stocks across the globe also pared losses but was down 6.77 points, or 0.64%, to 1,049.99 at the end of the U.S. trading day. Earlier, the pan-European STOXX 600 index finished down 1.35%.
After earlier falling more than 1%, the S&P 500 managed to close very slightly higher with support from the energy, defense and technology sectors.
Sector Performance and Investor Sentiment
"A lot of the worry today is about inflation and oil because of the conflict happening in the Middle East," said Lindsey Bell, chief investment strategist at 248 Ventures, adding that these concerns kept investors focused on U.S. equities where they saw greater certainty in "earnings and economic growth than in other parts of the world."
Among the S&P 500's 11 major industry sectors, the technology sector rose 0.9% and was the third-biggest percentage gainer behind a roughly 1% gain in the industrials index, which includes defense stocks, and energy, which rose nearly 2% due to the oil rally.
"In times of uncertainty, tech becomes defensive because it has the earnings growth, margin expansion and positive cash flow that other sectors don't have," Bell said.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said that global markets were on edge but investors did not seem to be panicking or predicting a worldwide economic collapse.
The Dow Jones Industrial Average fell 73.14 points, or 0.15%, to 48,904.78, the S&P 500 rose 2.74 points, or 0.04%, to 6,881.62 and the Nasdaq Composite rose 80.65 points, or 0.36%, to 22,748.86.
The CBOE volatility index, sometimes referred to as Wall Street's fear gauge, pared gains after rising earlier to 25.24, its highest point since November. It finished up 1.58 points at 21.44.
Bond and Currency Markets Respond
Government Bonds and Treasury Yields
In government bonds, U.S. Treasury yields rose across durations as an early bout of safe-haven buying over the risk of a drawn-out conflict gave way to concern about the potential for a global inflation spike due to the surge in oil prices.
The yield on benchmark U.S. 10-year notes rose 7.6 basis points to 4.038%, from 3.962% late on Friday while the 30-year bond yield rose 5.3 basis points to 4.6855%.
The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 9.8 basis points to 3.477%, from 3.379% late on Friday.
Currency Market Movements
In currency markets, the dollar was the biggest gainer, rallying even against safe-haven currencies such as the Swiss franc and Japanese yen. Moves in the oil market impact currency markets given the U.S. is a net energy exporter while both Europe and Japan rely heavily on imports.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose about 0.9%.
The euro was down 1.01% at $1.1694 while against the Japanese yen, the dollar strengthened 0.86% to 157.37. Against the Swiss franc, the dollar strengthened 1.34% to 0.779.
Commodities: Cryptocurrencies and Precious Metals
Bitcoin and Cryptocurrencies
In cryptocurrencies, bitcoin gained 5.58% to $69,364.30.
Gold Rallies as Safe Haven
In precious metals, safe-haven gold advanced on Monday, driven by escalating concerns of prolonged conflict in the Middle East.
Spot gold rose 1.09% to $5,335.04 an ounce. U.S. gold futures rose 1.97% to $5,333.70 an ounce.
(Reporting by Wayne Cole in Sydney, Alun John in Europe and Sinéad Carew in New York; Editing by Sam Holmes, Shri Navaratnam, Emelia Sithole-Matarise and Nia Williams)
