Stocks Fluctuate, Bonds Fall with Middle East in Focus: Market Upheaval

(Bloomberg) — European stocks fluctuated and U.S. stock futures rose modestly while Treasury bonds fell, as traders tracked efforts by the U.S. and its allies to prevent further escalation of the Israel-Hamas conflict.

Most read by Bloomberg

Mining stocks outperformed in Europe, while oil stocks were boosted by the recent rise in crude oil prices following the war in the Middle East. Polish stocks rose the most since May 2022 and the zloty gained as a bloc of pro-European opposition parties appeared on track to topple the nationalist government.

Markets stabilized after last week’s rush to safe-haven assets as traders await further developments in the Middle East. S&P 500 contracts posted slight gains on Monday. 10-year Treasury yields rose more than 6 basis points after falling 19 basis points last week. Gold lost more than 1%.

Oil prices hovered in a tight range as U.S. officials rushed to talk to Middle Eastern countries – including back-channel talks with Iran – to contain the conflict. A greater escalation could bring Israel into direct conflict with Iran, a supplier of arms and money to Hamas, which is classified as a terrorist group by the United States and the European Union.

“It’s very tragic at the moment, but it’s focused on this particular country. I’m sure the headlines will remain very unpleasant for some time to come. But I also think markets can still rise,” Mark Matthews, head of Asia research at Julius Baer, ​​said on Bloomberg Television.

A gauge of Asian stocks fell as stocks in mainland China fell despite the central bank making its biggest medium-term liquidity injection since 2020.

Headwinds in China’s markets are increasing. The US has taken steps to tighten restrictions on advanced chip technology and concerns about the mainland’s real estate sector continue. The People’s Bank of China on Monday injected a net 289 billion yuan ($39.6 billion) through a medium-term credit facility and kept the key interest rate unchanged at 2.5%.

The story goes on

“The PBOC continues to show an easing bias in its operations today,” said Becky Liu, head of China macro strategy at Standard Chartered Bank. “We believe interest rates in China will remain low in the longer term due to expected continued subpar growth during the current economic transition.”

The US said it would tighten sweeping measures restricting China’s access to advanced semiconductors and chip-making equipment to prevent its geopolitical rival from gaining a military advantage.

Elsewhere, the dollar’s strength indicator fell slightly, while the New Zealand dollar led gains among major currencies after the country elected a center-right government on Saturday.

Click here for the latest news on the Israel-Hamas conflict

Traders are also keeping a close eye on the latest economic data and analyzing comments from central bank officials for clues on the policy outlook. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation was underway and reiterated his preference for interest rates to remain where they are unless data changes drastically, despite a rise in inflation expectations of US consumers for the coming year in early October.

Key updates on the global economy this week include Chinese growth numbers as well as inflation readings in Japan, the UK and the euro zone. Meanwhile, Fed Chairman Jerome Powell is due to speak later this week after a series of stronger-than-expected data readings.

“Markets and policymakers have weathered strong employment data and slightly higher inflation readings,” said Klaus Baader, chief global economist at Société Générale. “Despite all of this, Fed officials are signaling that the peak in interest rates has been reached and maintaining debate over the pace and timing of rate cuts.”

Important events this week:

• Russian Foreign Minister Sergei Lavrov is visiting China on Monday

• US Treasury Secretary Janet Yellen will meet with euro zone finance ministers in Luxembourg on Monday

• François Villeroy de Galhau, member of the Governing Council, speaks on Monday

• Huw Pill, chief economist at the Bank of England, speaks on Monday

• US Empire Manufacturing Index, Monday

• Philadelphia Fed President Patrick Harker speaks Monday

• Chinese President Xi Jinping is hosting world leaders at the Belt and Road Forum in Beijing, which Russian President Vladimir Putin will also attend on Tuesday

• Germany ZEW survey expectations, Tuesday

• UK Jobless Claims, Unemployment, Tuesday

• European Central Bank-IMF Joint Policy and Research Conference, Tuesday

• US retail sales, corporate inventories, industrial production, cross-border investment, Tuesday

• Goldman Sachs, Bank of America results, Tuesday

• New York Fed President John Williams will moderate the discussion, while Richmond Fed President Tom Barkin will speak at a separate event on Tuesday

• Reserve Bank of Australia Governor Michele Bullock speaks on Wednesday

• China’s GDP, retail sales, industrial production, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• Morgan Stanley, Netflix, Tesla earnings, Wednesday

• The Federal Reserve will release an economic survey in the Beige Book on Wednesday

• Philadelphia Fed President Patrick Harker and New York Fed President John Williams will speak at separate events on Wednesday

• Unemployment in Australia, Thursday

• Japan trading, Thursday

• Property prices in China, Thursday

• Initial jobless claims in the US, Thursday

• Federal Reserve Chairman Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker and Dallas Fed President Lorie Logan speak on Thursday various events

• Japanese CPI, Friday

• Key interest rates for Chinese loans, Friday

• President Joe Biden will receive European Union representative Ursula von der Leyen in Washington on Friday

• Philadelphia Fed President Patrick Harker speaks Friday

Some of the key moves in the markets:

Shares

• The Stoxx Europe 600 was little changed at 8:26 a.m. London time

• S&P 500 futures rose 0.2%

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average rose 0.2%

• The MSCI Asia Pacific Index fell 1%

• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.2% to $1.0528

• The Japanese yen was little changed at 149.59 per dollar

• The offshore yuan was little changed at 7.3155 per dollar

• The British pound rose 0.2% to $1.2170

Cryptocurrencies

• Bitcoin rose 2.5% to $27,890.25

• Ether rose 1% to $1,579.87

Tie up

• The 10-year Treasury yield rose seven basis points to 4.68%

• The 10-year German government bond yield rose four basis points to 2.77%

• The UK 10-year government bond yield rose five basis points to 4.43%

raw materials

• Brent crude fell 0.2% to $90.72 a barrel

• Spot gold fell 1.1% to $1,911.27 an ounce

This story was produced with support from Bloomberg Automation.

– With assistance from Wenjin Lv and Matthew Burgess.

Most read by Bloomberg Businessweek

©2023 Bloomberg LP