U.S. stock futures slipped in Asia on Monday as the military conflict in the Middle East boosted oil and Treasuries, while the sizzling September U.S. jobs report raised the rate stakes for inflation figures later in the week.
A holiday in Japan made for thin conditions but the early bid was for bonds and the safe harbours of Japanese yen and gold, with the euro the main loser.
"The risk is higher oil prices, a slump in equities, and a surge in volatility that supports the dollar and yen, and undermine 'risk' currencies," said analysts at CBA in a note.
Israel pounded the Palestinian enclave of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history when Islamist group Hamas killed 700 Israelis and abducted dozens more.
The danger of disruptions to supply was enough to see Brent jump $2.93 to $87.51 a barrel, while U.S. crude climbed $3.04 to $85.83 per barrel.
Gold was also in demand, rising 0.8% to $1,848 an ounce .
In currency markets, the yen was the main gainer though moves were modest overall. The euro dipped 0.3% to 157.44 yen , while the dollar dipped 0.1% to 149.14 yen . The euro also eased 0.3% on the dollar to $1.0556 .
The cautious mood was a balm for sovereign bonds after recent heavy selling and 10-year Treasury futures rose a sizable 18 ticks. Yields were indicated around 4.71% compared to 4.81% on Friday.
Any sustained rally in oil prices would act as a tax on consumers and add to inflationary pressures, which weighed on equities as S&P 500 futures shed 0.8% and Nasdaq futures lost 0.7%.
While Tokyo was closed, Nikkei futures were trading down 0.7% and near where the cash market ended on Friday.
The news from the Middle East could also sour the start of corporate earnings season with 12 S&P 500 companies reporting this week including JP Morgan, Citi, and Wells Fargo.
The strength of the U.S. jobs report had fed expectations that interest rates would have to stay high for longer, with another major test looming from data on September consumer prices.
Median forecasts are for 0.3% gain in both the headline and core measures, which should see the annual pace of inflation slow a touch.
Minutes of the last Federal Reserve meeting are due this week and should help gauge how serious members were about keeping rates up, or even hiking again.
Early Monday, markets seemed to think developments in the Middle East would lean against further Fed hikes, and perhaps hasten a policy easing next year.
Fed fund futures now implied an 86% chance rates would stay on hold in November, and had around 75 basis points of cuts priced in for 2024.
China also returns from holiday this week with a deluge of data including consumer and producer inflation, trade, credit and lending growth.
