LHX - Oil and defense: Latest developments in war between Israel and Hamas

2023-10-10 06:17:13 ET

Things are heating up in the Middle East following the brutal weekend attack by Hamas that killed over 900 Israelis and injured 2,600. Overnight, Israel regained control of the Gaza-Israel border, while beefing up retaliatory air strikes as it imposes a complete siege of the Strip. Over 100 Israeli civilian hostages, including women and children, still remain in Gaza - which Hamas have threatened to execute with broadcasts of audio and video - as it continues to shoot rockets into Israel that have numbered in the thousands in recent days.

Incoming: "The horrors that Hamas has committed have not been witnessed since the hours of ISIS," Israeli Prime Minister Bibi Netanyahu declared in a nationally televised address. "What we will do to our enemies in the coming days will reverberate with them for generations." The Israeli military has already activated 300,000 reservists in a massive mobilization, while the Pentagon has warned Iran and Lebanese terror group Hezbollah to "think twice" before opening another front to the war.

Defense stocks surged on Monday as the U.S. began delivering munitions to Israel, with Northrop Grumman ( NYSE: NOC ), L3Harris ( NYSE: LHX ), Huntington Ingalls ( NYSE: HII ), Lockheed Martin ( NYSE: LMT ) and General Dynamics ( NYSE: GD ) finishing the session as the top five gainers in the S&P 500. The USS Gerald Ford aircraft carrier and accompanying war vessels have also been sent to the Mediterranean, with the U.S. indicating it was prepared to come to Israel's defense and protect its interests in the region. Elsewhere, WTI crude oil ( CL1:COM ) pared its big gains following a "knee-jerk" surge reaction , but still remains elevated at $86/bbl, while U.S. stock indexes turned higher and Treasuries had their best day since March following the latest policy remarks from the Federal Reserve.

On the move: Israel's currency, the shekel, fell to a seven-year low against the dollar on Monday, prompting the Bank of Israel to sell up to $30B of dollar reserves and $15B through the swaps markets. The move will provide necessary liquidity , as well as support and stabilize the exchange rate, while many economists expect that the local economy can withstand an extended war of more than eight weeks. "It's very different now than back in 1973," said Bob Savage, BNY Mellon's head of Markets Strategy and Insights, referring to the Yom Kippur War and ensuing oil crisis. "There are some notable economic strengths along with political shifts in play. Israel has links to Egypt and to the UAE, along with some significant natural gas reserves now. When you look at Israel's budget situation, it appears to have plenty of room for war spending."

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