Stocks stall, bonds gain on Middle East tension: Markets Wrap

(Bloomberg) — US Treasuries jumped, leading European bonds higher, as rising tensions in the Middle East drove investors toward havens.

Most Read from Bloomberg

The 10-year Treasury yield fell nine basis points after Israel intensified air strikes on Hamas targets in Gaza and at least two missiles were fired at Israel from Lebanon. Germany’s 10-year yield dropped four basis points.

Investors are wary of an escalation of the conflict which would create ripple effects through the Middle East, endangering Israel’s fragile rapprochement with its Arab neighbors and increasing the risks that hostilities spiral into a broader regional war with implications for crude oil supplies.

“A rallying bond market when faced with higher political risk is a kind of positive development,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors. “One thing investors have been trying to call this year without much success is when bonds go back to their traditional role of hedging against decline in risk appetite.”

Meanwhile, a rally in European stocks stalled as disappointing corporate news tempered optimism about the outlook for interest rates and economic stimulus from China.

The Stoxx Europe 600 index fluctuated after clocking its biggest gain of the year on Tuesday. LVMH slumped as much as 8.5% after reporting softening sales, a signal that the post-pandemic luxury boom is waning. That weighed on the luxury-goods sector, with Richemont, Christian Dior SE and Burberry Group Plc declined more than 4% each. Fresenius Medical Care AG & Co. KGaA plunged more than 20% after an early halt of an Ozempic kidney trial, which analysts deemed negative for the kidney-dialysis provider.

Story continues

US stock futures were little changed after both the S&P 500 and the Nasdaq 100 climbed 0.5% Tuesday.

Ahead of September meeting minutes due Wednesday, Fed Bank of San Francisco President Mary Daly said tighter financial conditions may mean the central bank “doesn’t have to do as much,” the latest in a string of softer commentary that raised hopes interest-rate hikes may be done for now. Investors will be watching for any hints in the Fed minutes that the central bank may not follow through with the last hike indicated in its economic projections. Producer inflation data later Wednesday will add to the picture.

“Policymakers have begun to acknowledge a lesser need for further policy action given financial conditions have tightened considerably after the recent surge in Treasury yields,” said Ben Jeffery at BMO Capital Markets. “This acknowledgment may have reduced angst around the need for additional rate increases.”

The Bloomberg dollar index was little changed after a fifth straight session of declines. Asia’s emerging market currencies gained, with the Korean won and Thai baht leading the advance.

Global investors also kept a close eye on geopolitics. US President Joe Biden vowed to provide Israel full support that includes shipments of munitions and intelligence assistance.

Oil held onto gains following its surge earlier this week as Saudi Arabia pledged to help ensure market stability. Gold was steady near the highest this month.

A benchmark for Asian equities advanced for a fifth day, set for its longest winning streak since early September. South Korea’s Kospi benchmark led regional advance, as it headed for the most gains in nine months. Samsung Electronics Co. gave the largest boost as traders focused on a narrower clip of profit drop from the chip giant.

Key events this week:

• NATO defense ministers meeting in Brussels, Wednesday

• Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday

• US PPI, Wednesday

• Minutes of Fed’s September policy meeting, Wednesday

• Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday

• Japan machinery orders, PPI, Thursday

• Bank of Japan’s Asahi Noguchi speaks, Thursday

• UK industrial production, Thursday

• US initial jobless claims, CPI, Thursday

• European Central Bank publishes account of September policy meeting, Thursday

• Fed’s Raphael Bostic speaks, Thursday

• China CPI, PPI, trade, Friday

• Eurozone industrial production, Friday

• US University of Michigan consumer sentiment, Friday

• Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday

• G20 finance ministers and central bankers meet as part of IMF gathering, Friday

• ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday

• Fed’s Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 9:36 a.m. London time

• S&P 500 futures were little changed

• Nasdaq 100 futures rose 0.1%

• Futures on the Dow Jones Industrial Average were little changed

• The MSCI Asia Pacific Index rose 0.8%

• The MSCI Emerging Markets Index rose 1.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.0602

• The Japanese yen was little changed at 148.73 per dollar

• The offshore yuan fell 0.2% to 7.3030 per dollar

• The British pound was little changed at $1.2278

Cryptocurrencies

• Bitcoin fell 1.3% to $27,041.42

• Ether fell 0.1% to $1,558.03

Bonds

• The yield on 10-year Treasuries declined nine basis points to 4.56%

• Germany’s 10-year yield declined four basis points to 2.73%

• Britain’s 10-year yield declined seven basis points to 4.36%

Commodities

• Brent crude was little changed

• Spot gold rose 0.4% to $1,868.29 an ounce

This story was produced with the assistance of Bloomberg Automation.

—With assistance from Sujata Rao, Winnie Hsu and Michael Msika.

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.