US pre-open: Middle East conflict to hit markets early as oil prices jump

(Sharecast News) - US stocks were expected to fall on Monday, reversing much of the gains made the previous session, on the back of heightened geopolitical tensions in the Middle East. Futures on the Dow Jones Industrial Average were down 0.4% in pre-market trade, while the S&P 500 was falling 0.6% and the Nasdaq was slipping 0.8%.

Crude prices, which dropped sharply last week, were rebounding strongly over the weekend after a surprise attack by Hamas on Israel on Saturday morning, killing more than 700 people, including 260 at a music festival. Israel swiftly retaliated launching air strikes in Gaza, which are said to have killed more than 500.

Israeli Prime Minister Benjamin Netanyahu declared that Hamas would "pay a price it has never known before".

"As we saw following the start of the Russo-Ukrainian war, the focus will now be on attempting to assess the ramifications of the conflict, and whether it will widen to include other states," said Chris Beauchamp, chief market analyst at IG.

Front month West Texas Intermediate was up 3.5% at $85.71 a barrel, coming back after reaching an intraday peak of $87.24 a barrel. Brent crude was up 3.2% at $87.28 a barrel having touched an earlier high of $89.

No major economic data was due for release with the US observing Columbus Day, but speeches from Fed members Lorie Logan and Philip Jefferson will be closely watched, especially in the aftermath of last Friday's forecast-smashing jobs report.

Non-farm payrolls surged by 336,000 last month, double what economists had pencilled in (170,000). What's more, that was on top of upwards revisions to figures for the previous two months by a combined 119,000.

The strong beat led to commentary that the Fed may once again tighten monetary policy to cool down an overheating economy; though others believe that the recent surge in bond yields may force policymakers to be more cautious about further rate hikes just yet.

"We will look to the tone of Fed speak to send a clearer message about the potential for another hike later this year and generally expect rates to remain choppy with a bias to higher," said analysts at TD Securities in an email.

Oil stocks surge

In stock movements, oil futures were rising strongly across the board as crude prices jumped. ExxonMobil, Chevron, Conocophillips, EOG Resources and Occidental Petroleum were all up over 2% in pre-market trade.

Disney was also rising after activist investor Nelson Peltz raised his stake to over 30m shares, worth over $2.5bn, through his firm Trian Fund Management. Peltz is said to be pushing for multiple seats on the board.

Financial stocks were under pressure as investors scaled back their appetite for risk, with Bank of America, Wells Fargo and JPMorgan Chase & Co futures falling ahead of the opening bell.