On Saturday, October 7, 2023, Hamas, a Palestinian militant group, launched a surprise rocket attack on Israel. It was the deadliest attack on Israel from Gaza in years. The Israel war has added further uncertainty to the global markets.

The attack came amid rising tensions between Israelis and Palestinians. In the weeks leading up to the attack, there had been a series of clashes between Israeli forces and Palestinian worshippers at the Al-Aqsa Mosque compound in Jerusalem. The violence had sparked protests and demonstrations across the region.

The Hamas attack was widely condemned by the international community. The United States, the United Nations, and the European Union all called for an immediate ceasefire. However, both Hamas and Israel have refused to comply.

Israel launched a series of airstrikes on the Gaza Strip on Saturday, in response to a surprise rocket attack from the Palestinian militant group Hamas that killed at least seven Israelis. The Israeli military said it targeted Hamas’s underground infrastructure, including weapons factories and command centres.

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Investors Panic as war escalates.

As per Reuters, the Israeli stock and bond prices took a beating. Key Tel Aviv share indices (.TA125), (.TA35) ended nearly 7% lower, with the banking shares plunging close to double digit percentage points. The government bond prices fell as much as 3% in the market’s initial response to the bloodiest attack on Israel in decades.

The Middle East Markets also saw a sea of red, The Tadawul All Share Index in Riyadh saw a 1.2% drop. Egypt’s EGX30 saw a drop of around 2.5%.

Here’s how Gold, Crude oil, Crypto and Indian indices are poised

Gold, Crude Oil and Bitcoin

TradingView, Analysis Chapel Bridge Consulting

Gold: Gold prices have been under pressure for the past two weeks. However, we could see some bit of price action on Monday as investors might move into safe assets such as gold on the back of war fears.

Global Crude Oil: Global crude oil prices fell sharply last week, their biggest weekly decline since March. This was due to a combination of factors, including another partial lifting of Russia’s fuel export ban and concerns about weakening demand due to macroeconomic headwinds. However, the Israel- Palestine conflict could induce some bit of volatility in crude oil prices on Monday.

Bitcoin remains flat: Bitcoin prices have not seen much action on Saturday and Sunday despite the war news. Investors will be closely watching the prices of Bitcoin as in the initial phase of the Ukraine war Bitcoin prices experienced significant volatility. In the days leading up to the invasion on February 24, 2022, Bitcoin prices fell by around 10%, from around US$45,000 to around US$40,000. However, in the immediate aftermath of the invasion, Bitcoin prices rebounded sharply, reaching a high of nearly US$47,000 on February 27th.

This initial rebound was likely due to a number of factors, including:

  • The perception of Bitcoin as a safe haven asset in times of uncertainty.
  • The use of Bitcoin by Ukrainian refugees to flee the country and to receive donations.
  • The purchase of Bitcoin by Ukrainian officials to fund the war effort.

However, Bitcoin prices were unable to sustain their gains, and they began to fall again in early March. By mid-March, Bitcoin prices had fallen back to around US$40,000.

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Indian Stock Market

Source: TradingView, Analysis Chapel Bridge Consulting

The benchmark Indian indices closed slightly in the green for the week. Both Bank Nifty and Nifty are trading close to the resistance level. All the major Indian indices are trading close to their All Time Highs (ATH), exhibiting good strength.

Source: TradingView, Analysis Chapel Bridge Consulting

The market was weighed down by a number of factors last week, including:

Central bank taking a cautious approach to monetary policy: On Thursday (2nd Oct), the RBI issued a statement on the Monetary Policy Committee’s (MPC) decision to keep the repo rate unchanged at 5.4%.

Foreign investor selling: The FIIs have been net sellers for the past two months, this is due to a number of factors, including the strong US dollar and concerns about the global economy.

Source: Sensibull, Analysis Chapel Bridge Consulting

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How have the stock markets reacted in the past during and after a war

The stock market typically reacts negatively to war news. This is because war creates uncertainty and volatility, which market participants dislike. War can also lead to economic disruptions, such as supply chain disruptions, higher energy prices, and inflation. All of these factors can weigh on corporate profits and stock prices.

In the immediate aftermath of a war, in the past we have seen that investors sell stocks as they seek to reduce their risk exposure. However, if the war is relatively short-lived and does not have a significant impact on the global economy, the stock market may recover quickly. In some cases, the stock market may even rally after a war, as investors anticipate a period of economic growth and reconstruction.

Here are some examples of how the Sensex and Nifty 50 have reacted to war news in the past:

Kargil War (1999): The Sensex fell by about 10% in the month after the start of the Kargil War. However, the market recovered quickly and was back to pre-war levels within a few months.

September 11 attacks (2001): The Sensex fell by about 15% in the week after the September 11 attacks. However, the market recovered sharply over the next two years and reached a record high in 2003.

Russian invasion of Ukraine (2022): The Sensex fell by about 10% in the month after the Russian invasion of Ukraine. However, the market has since recovered and is currently trading near record levels.

It is important to note that the stock market’s reaction to war news can vary depending on a number of factors, including the severity and duration of the conflict, the countries involved, and the global economic outlook. For example, a minor regional conflict may have little impact on the stock market, while a major war between two major economies could have a significant negative impact.

In general, however, the Sensex and Nifty 50 have historically reacted negatively to war news. This is because war creates uncertainty and volatility, which investors dislike. War can also lead to economic disruptions, such as supply chain disruptions, higher energy prices, and inflation. All of these factors can weigh on corporate profits and stock prices.

Investors should be aware of the potential risks associated with war and take steps to protect their portfolios. However, it is also important to note that the stock market has historically recovered from war-related losses.

The global uncertainty could tame the bulls further.  As of now, the investors are closely watching the developments, last week the Indian market was supported by weak global crude oil prices, however, it’s a wait and watch game now as crude oil prices could react to the news development that came post the market hours. Currently the markets are heading into the earnings season, and the result trends could be a major driving factor than the news on Israel-Palestine conflict, considering low disruptions to the global trade.

4 Comments

  • Prakash

    I loved the article. Thank you for clear article. Very informative

    Reply
  • Team Chapel Bridge

    You’re welcome! Prakash, we are glad you found our article informative and helpful.
    We are always happy to hear from our readers, so please feel free to reach out to us if you have any other questions or feedback.

    Cheers!
    Team Chapel Bridge Consulting

    Reply
  • PH

    Very well written article.

    How have the stock markets reacted in the past during and after a war can be separate piece altogether. 🙂

    But what is the key takeaway of the article? Just wait and watch?
    Should we worry about any impact? Will the Israel Palestine war lead to supply chain disruptions, hit energy prices?

    Reply
    • Team Chapel Bridge

      Thank you for your feedback. We are glad you found our article informative and helpful.
      Most of the times in the markets the best approach is wait and watch as we cant predict the short term, as for the long-term, we have explained how historically the market has behaved.
      Energy prices could be volatile, as seen in the past two days.
      We are always happy to hear from our readers, so please feel free to reach out to us if you have any other questions or feedback.

      Cheers!

      Reply

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