Global markets remain calm despite US attack on Iran: here's why

Global financial markets are keeping rather contained despite the US airstrikes on Iranian nuclear facilities over the weekend.

“MSCI World” – the index that tracks more than 1,000 large and mid-cap companies from as many as 23 developed countries, is down a tad above 0.32% at the time of writing.

Safe haven like gold is not seeing inflows either and is, in fact, down more than 0.2% early on Monday, through now the precious metal is rising.

Why? Because investors and even experts believe the conflict will likely remain contained, and may even prove positive for a handful of investment assets.

Why are global markets disregarding the attack on Iran?

President Trump delivered on his threat to attack Tehran’s nuclear sites on Saturday, which could have resulted in concerns that geopolitical tensions are indeed escalating in the Middle East.

However, investors are actually shaking off those concerns this morning because they’re reading the strike on Iran as a “relief” since it effectively removes the nuclear threat for the region,” argued Dan Ives, a senior Wedbush analyst, in his latest note to clients.

Ives now believes the Iran-Israel conflict is an “isolated” development, and the risk of the US-Iran tensions trickling down to the rest of the bloc is rather minimal.   

Note that the S&P 500 is currently at 5,992.73, up 0.42,% indicating that the markets shrugged off the developments.

Will Iran succeed in closing the Strait of Hormuz?

Much of what happens next with the global markets will depend on how Iran reacts to the United States’ airstrikes on its nuclear facilities.

Tehran’s parliament has already voted in favour of closing the Strait of Hormuz, through which some 20% of the world’s oil supply, equivalent to about 18-20 million barrels per day, passes each day.  

Still, Peter Boockvar, chief investment officer at Bleakley Financial Group, is convinced that Iran is unlikely to succeed at disrupting the global oil supply.

And “if they accept the end of their military nuclear desires … this could be the end of the conflict and markets will be fine,” Boockvar added in a recent interview with CNBC.

What to expect from markets if Strait of Hormuz is closed

Investors should note, however, that the possibility of Tehran proceeding with plans of closing the Strait of Hormuz and potentially disrupting the global supply of oil remains at least on the table for now.

According to Marko Papic, chief strategist at GeoMacro Strategy, the worst will come to pass for the financial markets if Iran proceeds with closing the key oil chokepoint.

“If they do, oil prices go north of $100, fear and panic take over, stocks go down ~10% minimum, and investors rush to safe havens,” he argued.

Amidst rising geopolitical tensions, S&P 500 has rallied some 20% over since April.