Erste Asset Management

Attack on Israel: Reaction of the markets

Attack on Israel: Reaction of the markets
Attack on Israel: Reaction of the markets
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Hamas terrorists launched an attack on Israel from Gaza last weekend. The death toll on Israel’s side is over 700, according to official figures, making it the deadliest attack since the state was founded in 1948.

The security cabinet has declared a state of war. Israeli Prime Minister Benjamin Netanyahu speaks of a long and difficult conflict with Hamas. Israel’s most important ally, the USA, has announced its support. This includes arms deliveries and the transfer of an aircraft carrier to the region.

What are the consequences of the attack?

The surprise attack raises questions about how the planning could have gone unnoticed by Israeli intelligence. After the acute phase of conflict, domestic tensions could arise from this. Immediately, there is also the question of how the conflict with Hamas will continue. Some analysts expect a ground offensive in Gaza.

In the long run, however, two strategic questions are crucial. First, how will Israel deal with the Palestinians in the future? Second, will other actors also become involved in the conflict, i.e. will there be a conflagration? There are several possible fronts here: the Palestinians living in Israel, the West Bank, Lebanon and of course Iran.

Markets are not currently pricing in an escalation

The immediate market reaction to the attacks is textbook: the Israeli currency shekel and stock prices in Israel weaker, price rises in oil, gold and also Bund futures. However, the scale of the movements has been very small so far. This means that markets are not currently pricing in an escalation of the conflict with other players.

We are currently keeping our tactical allocation unchanged: Overweight low-rated (but high-yielding) corporate bonds and near-money market securities, underweight government bonds and good-rated corporate bonds as well as gold, and neutral weighting in equities and commodities. Of course, we will continue to closely monitor the volatile situation.

Legal note:

Prognoses are no reliable indicator for future performance.


Legal disclaimer

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