Stocks Decline on Mideast Tensions, Havens Rally: Markets Wrap

(Bloomberg) — Global markets were rocked by fresh conflict in the Middle East that sent stocks lower while oil and haven assets including Treasures and the dollar rallied.

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Gains for Treasuries sent the 10-year yield as much as 14 basis points lower. An index of the dollar rose as much as 0.6%, while other havens including the Swiss franc, yen and gold also advanced.

The moves came as Israel launched a missile strike on Iran less than a week after Tehran’s rocket and drone barrage, according to two US officials, raising fears of a widening conflict across the Middle East. However, markets pared some of the risk-off moves after Iran said its Isfahan nuclear site was safe.

Oil prices jumped more than 4%, with Brent crude rallying above $90 per barrel before retreating back below that level. A gauge of Asia ex-Japan credit default swaps also headed for its biggest daily increase in more than eight months.

Futures contracts for the S&P 500 and Nasdaq 100 fell nearly 1% after the underlying benchmarks dropped for a fifth session on Thursday, amid repricing of Federal Reserve interest rate cut expectations. Asian equities also dropped Friday, with Japanese, South Korean, Australian and Hong Kong stocks sliding.

“The escalation in geopolitical risks was unexpected,” said Charu Chanana, a strategist at Saxo Capital Markets. “Semiconductor earnings have a huge task ahead to counter this increasing risk-off environment, with geopolitical escalations also muddying the outlook.”

Taiwan Semiconductor Manufacturing Co. dropped after the company revised down the revenue growth outlook for the chip industry, citing a softer recovery across smartphone and personal computer sectors. Infosys Ltd. slumped in the US after forecasting tepid sales growth for the year.

Japanese inflation data released Friday came in below economists’ estimates. An increasing number of economists expect the BOJ to raise rates again in October after it stands pat next week, with most of them flagging an earlier move in July as a risk scenario, according to a Bloomberg survey.

Meanwhile, New York Fed President John Williams said while it isn’t his baseline expectation to hike interest rates, it’s possible — if warranted. His Atlanta counterpart Raphael Bostic said he doesn’t think it will be appropriate to ease until toward the end of 2024. The Fed may hold rates steady all year, Minneapolis Fed chief Neel Kashkari told Fox News Channel.

The market’s biggest worry right now is re-accelerating inflation, according to Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.

“We are firmly in the camp of no rate cuts in 2024,” he said. “We believe investors should prepare for a higher-for-longer regime when it comes to both inflation and interest rates and that investment portfolios should be positioned for these dynamics for the foreseeable future.”

Most emerging market Asian currencies fell, with the Mexican peso dropping more than 6% versus the dollar before recovering much of the loss. The Indian rupee fell to another record low.

Elsewhere, Bitcoin sank as part of a wider retreat in cryptocurrencies.

Israel received a sovereign downgrade as S&P Global Ratings lowered its credit rating to A+ from AA- on heightened geopolitical risks for the region.

Key events this week:

  • BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday

  • Chicago Fed President Austan Goolsbee speaks, Friday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.8% as of 1:44 p.m. Tokyo time

  • Nikkei 225 futures (OSE) fell 2.6%

  • Japan’s Topix fell 1.7%

  • Australia’s S&P/ASX 200 fell 1.2%

  • Hong Kong’s Hang Seng fell 1.2%

  • The Shanghai Composite fell 0.4%

  • Euro Stoxx 50 futures fell 1.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0638

  • The Japanese yen rose 0.1% to 154.41 per dollar

  • The offshore yuan was little changed at 7.2464 per dollar

Cryptocurrencies

  • Bitcoin fell 1.6% to $62,481.53

  • Ether fell 2.2% to $3,003.61

Bonds

Commodities

  • West Texas Intermediate crude rose 1.8% to $84.25 a barrel

  • Spot gold rose 0.1% to $2,381.66 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from John Cheng.

(An earlier version corrected to remove reference to Israel’s downgrade as the first ever.)

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