Oil reacts cautiously to the expansion of conflict in the Middle East

Our Comments and Expectations

External background. On Friday, the S&P 500 opened higher but quickly corrected and closed down 0.2%. Semiconductor manufacturers and mega-cap companies declined on the index map after news that the U.S. may cancel tax benefits for allies with semiconductor plants in China. Christopher Waller from the Fed told CNBC that the central bank could lower interest rates as early as next month. Money markets slightly increased the probability of a Fed rate cut in September. Over the weekend, it became known that the U.S. carried out airstrikes on three nuclear facilities in Iran, effectively entering Israel’s war with Tehran despite President Donald Trump’s promises to avoid new foreign conflicts. Yemeni Houthis issued new threats against American commercial and military vessels. According to Citi, Brent oil prices could reach $90 per barrel if the Strait of Hormuz is closed, though the bank added that a prolonged shutdown is unlikely. Iran stated it is "reserving all options" for a response. Bloomberg reports that China has accumulated a record oil reserve of 1.18 billion barrels, shielding its refineries from potential Middle East supply disruptions. In Europe, the DAX index was the strongest performer on Friday (+1.3%), but futures show a 0.5% decline today. Early in the morning, S&P 500 futures dropped by 0.9%, but the absence of an immediate Iranian response helped trim the losses to 0.3%. Oil also initially rose by 4.2% but later reversed, now showing a modest gain of just 1.1%. Brent is trading at $77.8 per barrel.

Bonds. The yield on 10-year U.S. Treasuries decreased by 0.4%. Corporate bonds saw a slight increase.

KASE Index. The KASE Index declined for the first time after seven consecutive growth sessions. The drop was broad-based, indicating local fatigue among bulls after a strong rally that pushed the market to new highs. Following the U.S. strike on Iran, we expected a rise in oil prices and a decline in major indexes, but overall investor reaction in the morning appeared restrained.

Index stocks. The largest decline on Friday was seen in Air Astana shares, related to the shareholder register date. The biggest gainer was BCC, which continued to hit new highs. All major GDRs and ADSs declined during Friday’s session, though Kazatomprom shares were close to flat. Notably, uranium prices rose to $77 per pound. A likely trigger was the report of a military junta in Niger seizing a uranium mine owned by French nuclear giant Orano, which could deter investment in the region. However, this news did not positively impact uranium companies on Friday. If a negative session unfolds in the U.S. alongside rising oil prices, Kaspi shares could come under pressure, while KazMunayGas quotes may move higher.

 

Currency. On Friday, USDKZT reached a local resistance level of 523.7 before pulling back. This morning, the dollar is making another attempt to rise, reaching 522.7 KZT.