Stock Futures Fall on Middle East Fears, Havens Gain: Markets Wrap

(Bloomberg) – European and U.S. stock index futures fell as global markets were shocked by a new conflict in the Middle East that sent stocks lower while oil assets and safe havens including Treasuries and the dollar rose.

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Gains in Treasuries pushed the yield on the 10-year Treasury note down as much as 14 basis points. The dollar index rose as much as 0.6%, while other safe-haven currencies including the Swiss franc, yen and gold also rose.

The moves came as Israel launched a retaliatory strike on Iran less than a week after Tehran launched missiles and drones, according to US officials, raising fears of a widening conflict across the Middle East. However, markets pared some risk-off moves after Iran downplayed the significance of the incident.

Oil prices jumped more than 4%, with Brent crude rising above $90 a barrel before falling back below that level. The Asia ex-Japan credit default swaps measure is also on track for its largest daily increase in more than eight months. Asian stocks also fell on Friday, with Japanese, South Korean, Australian and Hong Kong stocks all falling.

“The escalation in geopolitical risks was unexpected,” said Charu Chanana, strategist at Saxo Capital Markets. “Semiconductor earnings have a huge task ahead of them to weather this increasingly risk-averse environment, with geopolitical escalation also clouding the outlook.”

Taiwan Semiconductor Manufacturing Co. fell after the company revised its chipmaking revenue growth forecast, citing a softer recovery across the smartphone and PC sectors. Infosys Ltd. declined. In the United States after expecting tepid sales growth for this year.

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Japanese inflation data released on Friday came in below economists' estimates. A growing number of economists expect the Bank of Japan to raise interest rates again in October after holding steady next week, with most pointing to an early move in July as a risk scenario, according to a Bloomberg survey.

Elsewhere, US stock indices fell for a fifth session on Thursday, amid a repricing of Fed rate cut expectations.

New York Fed President John Williams said that while this is not his base forecast, a rate hike is possible if warranted. His counterpart in Atlanta, Rafael Bostic, said he did not think it would be appropriate to ease until the end of 2024. Minneapolis Fed President Neal Kashkari told Fox News that the Fed may keep interest rates steady throughout the year.

The reacceleration of inflation is a major concern for markets, according to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.

“We are firmly in the camp of not cutting interest rates in 2024,” he said. “We believe that investors should prepare for a higher regime for a longer period when it comes to inflation and interest rates, and that portfolios should be positioned for these dynamics for the foreseeable future.”

Most Asian emerging market currencies fell, with the Mexican peso falling more than 6% against the dollar before recovering most of the losses. The Indian rupee fell to another record low.

Elsewhere, Bitcoin sank as part of a broader decline in cryptocurrencies.

Main events this week:

  • Bank of England Deputy Governor Dave Ramsden and European Central Bank Governing Council member Joachim Nagel speak on Friday

  • Chicago Fed President Austin Goolsbee speaks Friday

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Some key movements in the markets:

Stores

  • S&P 500 futures were down 0.8% as of 6:28 a.m. London time.

  • Nikkei 225 futures fell 2.5%

  • Japan's Topix index fell 1.7%.

  • Australia's S&P/ASX 200 index fell 1.1%.

  • The Hang Seng Index in Hong Kong fell by 1.1%.

  • Shanghai Composite Index fell 0.2%

  • Euro Stoxx 50 futures fell 1.4%

  • Nasdaq 100 futures fell 1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%.

  • There was little change in the euro at $1.0634

  • The Japanese yen rose 0.2 percent to 154.38 yen to the dollar

  • There was little change in the yuan in external transactions at 7.2491 to the dollar

  • The Australian dollar fell 0.3 percent to $0.6400

  • The British pound fell 0.1 percent to $1.2419

Digital currencies

  • Bitcoin fell 2.3% to $62,055.51

  • Ethereum fell 2.3% to $2,997.85

Bonds

  • The yield on the 10-year Treasury note fell seven basis points to 4.56%.

  • The 10-year Japanese bond yield fell three basis points to 0.835%.

  • The Australian 10-year bond yield fell three basis points to 4.25%.

Goods

  • West Texas Intermediate crude rose 2.4% to $84.70 a barrel

  • Spot gold rose 0.2 percent to $2,383.18 per ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from John Cheng.

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