Australia

Australian shares are set to edge higher following a rebound on Wall Street as investors assessed developments in the situation in Israel.

ASX futures were up 0.4% or 30 points as of 8:00am on Tuesday, suggesting a higher open.

Major U.S. stock indexes initially looked set for declines on Monday but rebounded in afternoon trading as the Israeli military retook several towns from Hamas control. The S&P 500 added 0.6%, while the tech-heavy Nasdaq Composite gained 0.4%. The Dow Jones Industrial Average rose 0.6%, or 197 points.

Concerns that the Israel-Hamas war would escalate into a broader conflict in the Middle East that limits oil supply sent energy prices higher. Brent crude futures, the global benchmark for oil, added 4.2%. West Texas Intermediate rose 4.3% to $86.38 a barrel.

Shares of defense contractors jumped as well. Lockheed Martin gained 8.9% and Northrop Grumman climbed 11%, both posting their best days since March 2020. Europe's defense companies, including BAE Systems of the U.K. and France's Dassault Aviation, were among its best performers.

Investors scooped up haven assets: Gold, often sought after by investors during times of geopolitical conflict, rose 1.1%.

In commodity markets, Brent crude oil rose 4.27% to US$88.19 a barrel while gold was up at US$1,861.45.

In local bond markets, the yield on Australian 2 Year government bonds was down at 3.97% while the 10 Year yield was also down at 4.52%. US Treasury notes were higher, with the 2 Year yield at 5.08% and the 10 Year yield at 4.80%.

The Australian dollar hit 64.08 US cents up from the previous close of 63.84. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, was up at 100.07.

Asia

Chinese shares closed lower with investor sentiment dented by lower-than-expected Golden Week tourism data and rising geopolitical tensions in the Middle East. The domestic traveler numbers and tourism revenue came in below the government's projections made before the holiday. Focus is on China's September CPI and trade data due later in the week. Consumer services and real estate stocks led the session's losses. China Tourism Group Duty Free Corp. shed 5.3% and Songcheng Performance Development declined 7.4%. China Vanke was down 1.45% and Poly Developments & Holdings Group was off by 1.3%. The benchmark Shanghai Composite Index closed 0.4% lower at 3096.92, the Shenzhen Composite Index ended down 0.1% and the tech-heavy ChiNext Price Index slipped 0.3%.

Hong Kong shares closed higher in a shortened trading session due to bad-weather warnings earlier in the day. Investors focused on oil prices amid uncertainty over the situation in the Middle East after the Hamas attack on Israel, ANZ analysts write in a research note. The benchmark Hang Seng Index was 0.2% higher at 17517.40 and the Hang Seng Tech Index rose 0.2% as well. Energy and consumer product stocks led gains. PetroChina rose 2.55% and CNOOC advanced 2.3%. Anta Sports and Li Ning were up 2.2% and 1.0%, respectively. Real estate companies led losses amid continuing concerns over the property sector despite China's stimulus policies. Longfor Group dropped 2.4% and Wharf Real Estate Investment was down 2.35%.

The Nikkei Stock Average closed 0.3% lower at 30994.67 as falls in electronics and energy stocks helped offset gains in utility and food stocks. Broader market index Topix ended flat at 2264.08. Investors will be focusing on U.S. jobs data due later in the day and their policy implications. The 10-year Japanese government bond yield falls half a basis point to 0.795%.

Indian shares closed lower as escalating geopolitical tensions in the Middle East weighed on global markets. As a net oil importer, local equities may underperform in the short term due to rising crude oil prices, Nomura analysts said in a research note. However, if the conflict doesn't turn into a wider and more prolonged event, the dip might be a buying opportunity for Indian stocks given the local market's strong outlook and the concerns over Chinese and Hong Kong shares, the analysts added. Mahindra & Mahindra dropped 2.05% and Bajaj Finance declined 1.7%. HCL Technologies was the best performer, rising 1.0%. The benchmark Sensex closed 0.7% lower at 65512.39.

Europe

European stocks fell as investors mull the potential geopolitical and economic implications of unfolding violence in the Middle East. The Stoxx Europe 600 dropped 0.3%, the CAC 40 retreated 0.6% and the DAX backtracked 0.7%. Concerns about how the Israel-Hamas conflict could affect oil supply and demand boosted Brent crude by 3.8% to $87.82 a barrel, lifting oil majors. Defense stocks also advanced, but fears about higher fuel prices and flight disruption hit airlines. Travel-related stocks such as TUI, InterContinental Hotels Group and Carnival also lost ground. "The move higher in oil and natural-gas prices has caused airline and other leisure stocks to slide and big-cap oil shares to rise," CMC Markets analyst Michael Hewson writes.

London's FTSE 100 blue-chip index finished Monday's trading session roughly flat, edging down 0.03% at 7492.21 points. "A sharp rise in energy prices, along with concerns over an escalation outside the current counterparties of Hamas and Israel, as Israeli forces hit back hard, is keeping investors on edge," CMC Markets UK analyst Michael Hewson wrote in a market comment. The FTSE 100 has been a notable outlier, however, given the strong performance of its energy and defensive stocks, he added. Higher oil and natural-gas prices have boosted BP and Shell—which sat at the top of the index along with defense contractor BAE Systems—but weighed on its leisure and airline stocks.

North America

Oil prices and defense stocks climbed Monday after the worst attack on Israel in decades shook financial markets.

Concerns that the Israel-Hamas war would escalate into a broader conflict in the Middle East that limits oil supply sent energy prices higher. Brent crude futures, the global benchmark for oil, added 4.2%. West Texas Intermediate rose 4.3% to $86.38 a barrel.

Shares of defense contractors jumped as well. Lockheed Martin gained 8.9% and Northrop Grumman climbed 11%, both posting their best days since March 2020. Europe's defense companies, including BAE Systems of the U.K. and France's Dassault Aviation, were among its best performers.

Investors scooped up haven assets: Gold, often sought after by investors during times of geopolitical conflict, rose 1.1%.

Major U.S. stock indexes initially looked set for declines but rebounded in afternoon trading as the Israeli military retook several towns from Hamas control. The S&P 500 added 0.6%, while the tech-heavy Nasdaq Composite gained 0.4%. The Dow Jones Industrial Average rose 0.6%, or 197 points.

"The global diplomatic effort to see this conflict contained so far is working," said Quincy Krosby, chief global strategist for LPL Financial. "That helped underpin the market's turn."

Krosby served as a U.S. diplomat before joining Wall Street, including as the energy attaché at the U.S. Embassy in London. She said escalation was tempered by Iranian officials denying that they helped Hamas plan the invasion.

"Even if Israel does absolutely not believe it, they are wedded to the denial from Iran," she said. "It makes the diplomatic effort easier and keeps this conflict contained."

The war's impact on Wall Street was strongest on shares of defense companies, energy firms and airlines, but the broader stock market remained unscathed.

"I do think investors are sort of used to it when tensions arise in the Middle East, the reactions are just not as extreme as they used to be," said James Demmert, chief investment officer of New York City-based Main Street Research, which manages roughly $2 billion in assets.

Energy stocks benefited from rising oil prices, with the S&P 500's energy sector advancing 3.5% in its best day since April. Shares of Chevron and Exxon Mobil each added more than 2.5%. Marathon Oil and Occidental Petroleum both gained more than 4.5%.

Meanwhile, shares of airline companies dropped with flights to Israel canceled: American Airlines, Delta Air Lines and United Airlines all slipped more than 4%. The U.S. Global Jets ETF fell 2.6%.

The European benchmark for natural gas surged, reflecting supply worries given Israel's offshore gas field under development for export to Europe. The safest European bonds rallied as yields on benchmark 10-year German and U.K. bonds declined.

The U.S. bond market was closed for the Columbus Day holiday, though the iShares 20+ Year Treasury Bond ETF rose 2.4%, reflecting demand for long-term bonds amid the conflict. Still, without the usual bond-market signals, investors had limited ability to gauge the severity of risk-off sentiment.

"Equity markets are generally bad at pricing in big geopolitical events. It is not their wheelhouse," said Steve Sosnick, chief strategist at Interactive Brokers. "It is hard to discern how these events have any real bearing on earnings, dividends, and cash flows broadly."

"The fact that it isn't getting overtly worse is the good news element," he added.