Equities gain, gold drops as fears of wider Middle East conflict ease

Equities gain, gold drops as fears of wider Middle East conflict ease

By Chris Prentice and Alun John

NEW YORK/LONDON (Reuters) -Investors scaled back safe-haven bets on Monday as worries over a wider Middle East conflict eased, boosting world equities and pressuring gold, oil and bond prices.

MSCI’s gauge of stocks across the globe rose 2.62 points, or 0.35%, to 745.90 by 11:04 a.m. EST (1504 GMT).

In a reversal of Friday’s “risk off” mood, spot gold lost 2.1% to $2,340.25 an ounce, poised for its biggest one-day drop in over a year.

On Wall Street, the Dow Jones Industrial Average rose 0.13% to 38,037.07, the S&P 500 gained 0.19% to 4,976.62 and the Nasdaq Composite gained 0.09% to 15,296.43.

Investors have taken cautious positions on Fridays in recent weeks, fearing an escalation in the conflict in the Middle East over the weekend when markets are closed and they are unable to trade.

“It seems neither Israel nor Iran want an escalation in the crisis in the Middle East,” said Kazuo Kamitani, a strategist at Nomura Securities. “With a subsequent strike from either side not looking like it’s coming, investor concerns have eased somewhat.”

But expectations of Federal Reserve interest rate cuts and concerns about chip sector earnings will continue to keep investors on their toes, he said.

More than 150 companies in the S&P 500 and 173 companies in the STOXX 600 are slated to report first quarter results this week, according to data from LSEG Workspace.

These include several big European banks, as well as U.S. tech giants Microsoft and Alphabet, with the latter in particular focus after chip maker Nvidia’s 10% drop on Friday, its biggest percentage fall in four years.

The STOXX 600 index rose 0.68%. MSCI’s broadest index of Asia Pacific shares outside Japan rose 0.95%.

Traders were expecting the first Fed rate cut as most likely coming in September following Consumer Price Index data earlier this month, though July was also seen as possible.

“The big picture in equities is that they have been able to digest this push back in rate expectations,” said Karim Chedid, Blackrock’s chief investment strategist for iShares EMEA.

“Now earnings have to deliver for them to continue to do well.”

London’s commodities-heavy FTSE-100 rose 1.72%, nearing an all-time high as tin and nickel rose to multi-month peaks. [.L][MET/L]

It was outpaced by a 3.11% gain for the Portuguese index as oil company Galp Energia rose nearly 20% after saying a field off Namibia could contain 10 bln barrels of oil. [.EU]

Iran said on Friday that it had no plan to retaliate following an apparent Israeli drone attack within its borders, which in turn followed an Iranian missile and drone attack on Israel days before.

HAVEN OUTFLOWS

Bond yields – which climb when prices fall – were generally heading back toward multi-month highs.

The yield on benchmark U.S. 10-year notes rose 1 basis points to 4.625%, from 4.615% late on Friday and the 30-year bond yield rose 1.9 basis points to 4.7303% from 4.711% previously.[US/]

In Europe, the benchmark Bund yield hit a new 5-month high. [GVD/EUR]

The dollar index, which measures the currency against six major peers, 0.1% at 106.21. The euro was down 0.1% at $1.0643.

“As long as there is this uncertainty about the cutting cycle particularly in the U.S, it’s interesting for investors to be in dollar longs because of its dual status as a high yielding currency and also a defensive currency,” said Yvan Berthoux, FX strategist at UBS.

Crude oil fell as traders put the focus back on fundamentals with a rise in U.S. stockpiles as the backdrop.

Brent futures 0.57% to $86.79 per barrel as U.S. crude lost 0.26% to $82.92.[O/R]

(Reporting by Kevin Buckland in Tokyo and Alun John in London; Editing by Angus MacSwan, Mark Potter and David Evans)