Investors, so far, don’t seem that worried about a wider conflict in the Mideast

Oil and stock futures traded largely flat Sunday evening as financial markets offered muted reactions to Iran launching hundreds of missiles and drones at Israel on Saturday.

The major U.S. stock indices and oil prices ticked up less than 0.2%. West Texas Intermediate crude hovered below $86 per barrel, and Brent crude was at $90.57. Analysts had earlier predicted that Brent could spike above $100 per barrel after already surging 20% in the year to date before the attack.

Prices for gold—traditionally seen as another safe-haven asset—edged up 0.4% to $2,383 per ounce, but remain below the record highs touched on Friday.

U.S. Treasury bonds, another safety trade, sold off slightly, lifting the 10-year yield 1.9 basis points to 4.518%. Similarly, the dollar fell against the euro and yen.

Cryptocurrencies dipped after rebounding from losses on Saturday. Bitcoin slipped 1.3% to $65,400, and ether eased 0.3% to $3,156.

The muted initial reaction may be due to optimism that the Middle East conflict won’t escalate. While it marked Iran’s first-ever, full-scale military assault on Israel, 99% of the projectiles were shot down, and no fatalities were reported.

Meanwhile, the White House signaled it’s seeking to prevent hostilities from spreading. President Joe Biden reportedly told Prime Minister Benjamin Netanyahu the U.S. would not participate in any offensive action against Iran, after pledging “ironclad” support for Israel’s defense.

Capital Economics said in a note early Sunday that increased tension in the Middle East likely gives the Federal Reserve even more cause to go slow on rate cuts, as oil prices could disrupt the central bank’s battle against inflation.

“The key risks for the global economy are whether this now escalates into a broader regional conflict, and what the response is in energy markets,” wrote Neil Shearing, Capital Economics’ group chief economist

But he added that potential counterweights include disinflationary pressure from China’s recent expansion in production capacity, which has lowered export prices, and demands from some OPEC+ members to pump more crude, which would lower oil prices.

In the immediate aftermath of the Iranian attack, cryptocurrency prices fell sharply Saturday evening but later recouped some losses. Earlier indications of market jitters came on Friday, when reports said an Iranian attack was imminent, boosting U.S. benchmark oil prices as much as 3% to top $87 a barrel.

U.S. Treasury bonds also rallied sharply, sending the 10-year yield down as much as 10 basis points as investors looked for safety. The U.S dollar advanced Friday as the geopolitical tensions caused investors to turn away from riskier emerging-market currencies.

Prices for gold surged to a fresh record high above $2,400 an ounce before later reversing those gains. And stocks sold off on Friday, led by risk-on tech shares, as investors also digested bank earnings and fresh inflation data that further dampened hopes for imminent Fed rate cuts.

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