A look at the day ahead in U.S. and global markets from Mike

Dolan

A rush to traditional financial havens on Friday on fears over

Iran's widely-flagged retaliatory strike on Israel has partly

reversed since Saturday's drone attack was largely foiled - but

markets remain jittery as the situation unfolds.

Most notably U.S. crude oil prices fell back sharply

from their pre-weekend pop to new 2024 highs and recoiled to the

lowest in almost two weeks.

Iran's attack involved more than 300 missiles and drones,

and was the first on Israel from another country in more than

three decades, raising concerns about a broader regional

conflict affecting oil traffic through the Middle East.

But the attack, which Iran called retaliation for an

airstrike on its Damascus consulate, caused only modest damage,

with missiles shot down by Israel's "Iron Dome" defense system.

Israel, which is at war with Iran-backed Hamas militants in

Gaza, has neither confirmed nor denied it struck the consulate.

While stock markets in Asia were mixed - as many caught up

with Friday's late sell-off on Wall Street - there was a clear

bounceback in U.S. stock futures first thing on Monday and

European stocks were higher too.

Hampered additionally by a dour take on JPMorgan's otherwise

forecast-beating first quarter results, the S&P500

recorded its worst day since January on Friday as the Middle

East tension went up several notches.

The central fear is an escalating regional conflict could

seed another energy shock and further roil U.S. markets already

on edge about stubborn inflation readings and possible Federal

Reserve hesitation in cutting interest rates over the remainder

of the year.

But Friday's broader market moves appeared more like classic

uncertainty trades - amid fears of dislocated prices as events

took place while markets were shut over the weekend.

And while there were some hopes the standoff between Israel

and Iran may stop short of a direct conflict between the two

regional military powers, the uncertainty could persist for

several weeks or more.

Gold prices, which have been rising sharply to record

highs over the past six weeks, spiked more than 2% on Friday,

but have largely unwound that latest move since.

Even U.S. Treasuries - often one of the key liquid havens

sought in such a crisis - received a safety bid on Friday

despite a turbulent week of inflation concerns and despite the

jump in oil prices.

The debate among many investors is whether a bigger Middle

East conflagration would ultimately act as an inflationary spur

or depress world business confidence and growth - or perhaps

even both.

U.S. 2-year Treasury yields fell back as much as

15 basis points from Thursday's new year highs above 5% - but

they have firmed back up to 4.92% on Monday.

As the March U.S. retail sales report tops the economic

calendar on Monday - with Goldman Sachs ( GS ) the latest of the big

bank earnings to hit - there was some attempt to recalibrate

Friday's index prices.

The International Monetary Fund's Spring meeting also kicks

off in Washington and it releases its latest World Economic

Outlook on Tuesday.

Inevitably, some sector rotation was afoot surrounding the

likelihood of continued Middle East tension - with defense

stocks lifted in Europe and airline stocks hit.

The dollar, which had already been pumped up by the relative

interest rate outlook between the Fed and European central

banks, was a big beneficiary of the safety bid too.

And its index has retained much of that move to a

2024 peak on Monday after its best week since 2022.

Dollar/yen continued to surge to 24-year highs close to 154

despite warnings of official intervention.

China's mainland stocks had a good start to the

week ahead of first-quarter GDP data on Tuesday as investors

interpreted new guidelines on the country's capital market as a

positive signal for the stock market.

China's securities regulator issued draft rules on Friday to

strengthen the supervision of company listings, delistings and

computer-driven programme trading, in a move to improve the

stock market and protect investors' interests.

Key diary items that may provide direction to U.S. markets later

on Monday:

* US corporate earnings: Goldman Sachs ( GS ), M&T Bank ( MTB )

* US March retail sales, April NAHB housing index, NY Fed's

April manufacturing survey, Feb business/retail inventories,

* Dallas Federal Reserve President Lorie Logan and San Francisco

Fed chief Mary Daly speak

* US Treasury sells 3-, 6-month bills

(By Mike Dolan, editing by Alex Richardson

[email protected])