(Bloomberg) -- Stocks tumbled and oil prices jumped as the eruption of war between the US and Iran rattled global markets. Gold and the dollar rose in a rush for havens.

Futures for the S&P 500 plunged 1.5% as equities retreated across regions. Nasdaq 100 contracts were down 1.9%. Brent crude traded near $80 a barrel after the conflict effectively shut the Strait of Hormuz — a vital artery off Iran’s coast that carries about a fifth of the world’s oil and significant volumes of gas.

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In Europe, gas surged as much as 25% on risks to global flows. The banking and travel sectors 4% or more, sending the Stoxx 600 down by 1.8%. British Airways owner IAG SA slumped 6.6% amid a widespread disruption to flights in the Middle East.

Safer assets drew strong demand as investors cut back on risk. Spot gold rose more than 2% to trade above $5,400 an ounce. The dollar gained the most since January. Treasuries, however, fell across the curve, unwinding part of last week’s rally that pushed the 10-year yield below 4%.

“The endgame remains highly uncertain, ranging from a relatively swift political exit to a broader regional spillover,” said Mathieu Racheter, head of equity strategy at Julius Baer. “In such a fog of war, markets tend to trade probabilities rather than shifting facts.”

 

Shaken by fresh anxieties over artificial intelligence and potential cracks in credit, all while trading at historically high valuations, stock markets must now contend with the spiraling military action in Iran and the broader region that threatens to destabilize global shipping and limit travel. The impact on oil and inflation is of paramount concern in markets that last month saw US stocks post their worst drop since April.

Markets remained volatile amid conflicting reports on discussions between Iran and the US. The Wall Street Journal reported that Iran made a fresh push to resume nuclear talks with the US. Iran’s national security chief Ali Larijani, however, said the country won’t negotiate.

US President Donald Trump said the bombing campaign against Iran will continue until its objectives are achieved. He called on the nation’s leaders to capitulate even as a report indicated at least one top official in Tehran sought to resume nuclear talks with the US. Trump said he has agreed to talk with Iran’s new leadership, The Atlantic reported, citing a conversation with him.

What Bloomberg’s Strategists Say...

“There is no catch-all defensive asset that can fully insulate portfolios from a sustained conflict in the Middle East. However, the dollar remains an effective hedge against energy price surges and the resulting cost-push inflation, reflecting the US shift from net energy importer to exporter.”

— Skylar Montgomery Koning, macro strategist. For full analysis, click here.

Strategists at Barclays Plc warned against quickly buying any dip. Investors have grown accustomed to geopolitical flare-ups that fade fast, but this episode risks lasting longer, wrote Ajay Rajadhyaksha, the firm’s global chairman of research, citing the potential for US casualties, strikes on Iranian leadership and disruption to Hormuz traffic.

“The risk-reward doesn’t seem compelling,” he said. “If equities pull back enough (say over 10% in the S&P 500), there is likely to come a time to buy. But not yet.”

Any long-lasting oil price spike would also muddy the case for Treasuries. While a flight to safety in markets would cause yields to fall, higher energy prices that feed through the economy and stoke inflation drive them higher.

The possibility of prolonged turmoil in the Middle East and the ripple effects of higher oil prices are giving money managers fresh reasons to sell equities and shift into safety. Rich valuations across global equities and credit also make it easier for investors to trim risk.

“This is all coming at a fragile time as investors are becoming more cautious,” said Dec Mullarkey, managing director at SLC Management. “US equity markets are already very sensitive to threats of technology disruption and emerging credit stress, so the prospects of higher commodity prices could force a selloff as investors rein in risk.”

Some of the main moves in markets:

Stocks

The Stoxx Europe 600 fell 1.8% as of 8:37 a.m. London time

S&P 500 futures fell 1.5%

Nasdaq 100 futures fell 1.9%

Futures on the Dow Jones Industrial Average fell 1.6%

The MSCI Asia Pacific Index fell 1.8%

The MSCI Emerging Markets Index fell 1.8%

Currencies

The Bloomberg Dollar Spot Index rose 0.8%

The euro fell 0.9% to $1.1704

The Japanese yen fell 0.7% to 157.21 per dollar

The offshore yuan fell 0.3% to 6.8854 per dollar

The British pound fell 1.2% to $1.3319

Cryptocurrencies

Bitcoin rose 0.2% to $65,804.76

Ether was little changed at $1,929.43

Bonds

The yield on 10-year Treasuries advanced two basis points to 3.96%

Germany’s 10-year yield advanced two basis points to 2.66%

Britain’s 10-year yield advanced nine basis points to 4.32%

Commodities

Brent crude rose 9.6% to $79.86 a barrel

Spot gold rose 2.5% to $5,410.29 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Ruth Carson, Matthew Griffin and Neil Campling.

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