Stock markets slid and oil prices jumped Friday on worries that an expected ground invasion of Gaza by Israel would spark a wider conflict in the crude-rich Middle East.
Risk aversion was compounded by US Federal Reserve boss Jerome Powell, who indicated a pause in interest rates at the bank’s next meeting but left open the prospect of a later hike.
That helped boost the dollar, which was close to topping 150 yen after surpassing the psychological level at the start of October for the first time in a year. The pound dropped on weak UK economic data.
Gold, a go-to haven asset in times of uncertainty, hit close to $2,000 an ounce.
“Risk-off sentiment continues to grip European markets,” noted Victoria Scholar, head of investment at Interactive Investor, after losses for Asian stocks and on Thursday in the United States.
“The conflict between Israel and Gaza has pushed gold to a three-month high and sparked further gains in the oil market.”
Hamas carried out a deadly attack on Israel from the Gaza Strip on October 7 and killed at least 1,400 people, mostly civilians, who were shot, mutilated, or burned to death, according to Israeli officials.
In response, Israel launched a relentless bombing campaign in Gaza. At least 3,785 Palestinians, mostly civilians, have been killed, according to the latest toll from the Hamas-run health ministry.
Traders are also wrestling with the prospect that US interest rates will remain elevated for some time as the Fed battles to contain inflation.
On Thursday, Powell suggested decision-makers would not hike at their next meeting at the end of October but left the door open to more tightening down the line.
News that weekly jobless claims in the United States came in lower than expected, suggesting the labour market was tighter than many predicted, dealt a blow to traders’ confidence.
“Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably towards our goal,” Powell told a conference in New York.
Additional evidence of “persistently above-trend growth” or fresh signs of tightness in the labour market “could warrant further tightening of monetary policy”.
Investors have also tracked the yield on the 10-year US Treasury note, seen as a proxy for US interest rates, which rose above five percent for the first time since 2007 on Thursday before falling back to 4.9 percent.
Key figures around 1100 GMT
London FTSE 100: DOWN 0.9 percent at 7,433.85 points
Frankfurt-DAX: DOWN 1.2 percent at 14,861.12
Paris-CAC 40: DOWN 1.1 percent at 6,843.25
EURO STOXX 50: DOWN 1.1 percent at 4,046.37
Tokyo-Nikkei 225: DOWN 0.5 percent at 31,259.36 (close)
Hong Kong-Hang Seng Index: DOWN 0.7 percent at 17,172.13 (close)
Shanghai Composite: DOWN 0.7 percent at 2,983.06 (close)
New York Dow: DOWN 0.8 percent at 33,414.17 (close)
Euro/dollar: UP at $1.0588 from $1.0583 on Thursday
Pound/dollar: DOWN at $1.2123 from $1.2142
Dollar/yen: UP at 149.95 yen from 149.81 yen
Euro/pound: UP at 87.33 pence from 87.14 pence
Brent North Sea crude: UP 1.0 percent at $93.33 per barrel
West Texas Intermediate: UP 1.5 percent at $90.67 per barrel