Global stock markets took a nosedive on Friday while oil prices skyrocketed following a military strike by Israel on Iran. This event triggered a flight to safe havens like gold, the U.S. dollar, and the Swiss franc.

The escalation in the Middle East, a significant oil-producing region, has injected uncertainty into financial markets. This comes at a time when the global economy is already under pressure due to U.S. President Donald Trump's aggressive trade policies.

The market response was immediate. Crude oil surged by as much as 14% to nearly US$79 per barrel before settling around US$74, marking a more than 5% increase for the day. This jump is set to be the largest one-day increase since 2022. Meanwhile, gold, a traditional safe-haven asset during times of global turmoil, climbed to US$3,416 per ounce, nearing the record high of $3,500.05 set in April.

This rush to safety was accompanied by a significant retreat from risk assets. U.S. stock futures plummeted by over 1.5% initially, European shares dropped by 1% at the opening bell, and major Asian stock markets in Japan, South Korea, and Hong Kong all fell by more than 1% each.

As of 04:32 a.m. ET, Dow E-minis were down by 505 points (1.17%), S&P 500 E-minis were down by 70.5 points (1.17%), and Nasdaq 100 E-minis were down by 309.25 points (1.41%). Futures linked to Canada's primary stock index also experienced a decline, with June futures on the S&P/TSX index down by 0.4% at 05:54 a.m. ET.

Chris Scicluna, head of economic research at Daiwa Capital Markets in London, highlighted the pressing question of how far this situation will escalate. He noted that the market's response, with stocks down and oil and gold up, appears to be on point.

Israel's extensive strikes against Iran targeted nuclear facilities, ballistic missile factories, and military commanders as part of a prolonged operation to prevent Tehran from developing a nuclear weapon. In retaliation, Iran launched approximately 100 drones toward Israeli territory, which Israel is actively trying to intercept.

The geopolitical tensions add another layer of uncertainty to an already fragile market sentiment, according to Charu Chanana, chief investment strategist at Saxo. If tensions continue to rise, crude oil and safe-haven assets are expected to maintain an upward trajectory.

Various currencies and bonds were affected by the events. The Israeli shekel dropped by nearly 2%, while long-dated dollar bonds for Israel, Egypt, and Pakistan also declined. U.S. Treasuries saw increased demand as investors sought safer assets, driving the yield on 10-year notes to a one-month low of 4.31%. In Europe, Germany's 10-year bond yield hit its lowest level since early March at around 2.42%.

Scicluna from Daiwa pointed out that a further increase in oil prices could impact expectations for central bank rate cuts. The response of bond markets to geopolitical events will hinge on the extent of the energy price surge.

Amid the uncertainty, some traders turned to the U.S. dollar as a safe haven, leading to a 0.6% increase in the dollar index to 98.277. However, the dollar remains down by 1% for the week, indicating bearish sentiment towards the currency. The Swiss franc briefly reached its strongest level against the dollar since April 21 before retreating slightly, while the Japanese yen and the euro also experienced fluctuations.

Traders are now bracing for the potential of a full-blown conflict in the Middle East, which is expected to keep uncertainty and volatility at elevated levels, according to Matt Simpson, a senior market analyst at City Index.