The surge in oil and gold prices, along with the rally of Japan’s yen, on Friday was fueled by reports of Israeli missiles striking a site in Iran. While Israeli officials had not commented on the reports and Reuters could not immediately confirm them, three individuals familiar with the matter asserted that Israel had indeed conducted the strikes. Iranian state media, on the other hand, reported early on Friday that its forces had destroyed Israeli drones, further heightening tensions.

Market analysts weighed in on the situation, emphasizing the flight to quality bid driven by renewed concerns of potential re-escalation in the Middle East conflict. Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities in Singapore, noted the shift in market focus from inflation to geopolitical tensions, advising caution in holding significant risk positions over the weekend.

Shoki Omori, Chief Japan Desk Strategist at Mizuho Securities in Tokyo, highlighted the potential impact on Japanese imports due to rising commodity prices and currency volatility. He suggested that the Bank of Japan might be cautious amid geopolitical risks and increased volatility in emerging market currencies.

Vasu Menon, managing director of investment strategy at OCBC in Singapore, emphasized the significance of the reported explosion in Iran and indicated its proximity to important sites. The lack of clarity regarding Israel’s involvement and Iran’s potential response has contributed to market nervousness and volatility amidst existing uncertainties surrounding inflation and interest rates.

Various analysts expressed concerns about the implications of the escalating conflict on global markets. Nakamura Matsuzawa, Chief Macro Strategist at Nomura in Tokyo, highlighted the worsening of global inflation expectations and emphasized the risk-off sentiment prevailing in markets. Moh Siong Sim, Currency Strategist at Bank of Singapore, noted the market’s nervousness and underlined the need for clarity on the situation’s severity and potential retaliation.

Chief Macro Strategist Damien Boey, who is at Barrenjoey in Sydney, discussed the interconnectedness of bonds and equities amid uncertainty about global inflation, suggesting commodities as a potential alternative asset class. Khoon Goh, Head of Asia Research at ANZ in Singapore, emphasized the swift market reaction and the potential for further volatility depending on Iran’s response.

Christopher Wong, Currency Strategist at OCBC in Singapore, highlighted the dampening effect on risk assets. At the same time, Charu Chanana, Head of Currency Strategy at Saxo in Singapore, underscored the triple impact of Federal Reserve hawkishness, semiconductor earnings, and escalating geopolitical risks. Overall, market sentiment remained cautious as investors awaited further developments and clarity on the situation.