US stocks fall due to Middle East conflict, oil rises

Pedestrians walking are reflected on an electronic board showing Japan's Nikkei Average in Tokyo

A reflection of walking passersby is seen on an electronic board showing Japan’s Nikkei Average outside a brokerage in Tokyo, Japan on March 20, 2023. Reuters/Androniki Christodoulou/File Photo Get licensing rights

  • Asian Stock Market:
  • Oil prices rise more than 5% due to Middle East hostilities
  • Safe-haven funds, gold and yen all gain
  • Markets expect more rate cuts by the Fed for next year

SYDNEY, Oct 9 (Reuters) – U.S. stock futures fell in Asia on Monday as a military conflict in the Middle East gave a boost to oil and Treasuries, while a warm September U.S. jobs report capped the week with weak inflation data. Raised the rate stakes for.

Holiday positions in Japan and South Korea were thin, but early bids were up for bonds and the safe harbor of the Japanese yen and gold, with the euro the main loser.

“Risks remain as higher oil prices, a slowdown in equities and increased volatility support the dollar and yen and weaken ‘risk’ currencies,” CBA analysts said in a note.

In particular, oil supplies from Iran are likely to be disrupted, he said.

“Given the tightness that already exists in physical oil markets through Q4 2023, an immediate reduction in Iranian oil exports risks sending Brent futures above $US100/bbl in the near term.”

Israel attacked the Palestinian territory of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history, when the Islamist group Hamas killed 700 Israelis and abducted dozens of others.

The threat of supply disruptions was enough to send Brent up $4.24 to $88.82 a barrel, while U.S. crude rose $4.26 to $87.05 a barrel.

Gold was also in demand, rising 0.8% to $1,848 an ounce.

In currency markets, the yen was the main gainer, although overall moves were modest. The euro fell 0.3% to 157.44 yen, while the dollar fell 0.1% to 149.14 yen. The euro also declined 0.2% to $1.0566.

The cautious mood was a relief for sovereign bonds after the recent heavy selloff and a big rise of 11 ticks in 10-year Treasury futures. The yield was reported at around 4.75%, compared with 4.81% on Friday.

Bet on Fed easing

Any sustained rise in oil prices would act as a tax on consumers and add to inflationary pressures, which weighed on equities as S&P 500 futures fell 0.8% and Nasdaq futures fell 0.7%.

Eurostoxx 50 futures slipped 0.4% and FTSE futures slipped 0.1%.

While Tokyo was closed, Nikkei futures were trading down 0.8% and close to where the cash market ended on Friday.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) ended flat, as Chinese blue chips (.CSI300) fell 1.1% on their return from holidays.

While a strong US jobs report had raised hopes that interest rates would remain high for longer, September consumer prices data is posing another big test.

The average forecast is for a 0.3% gain in both headline and core measures, which should moderate the annual pace of inflation slightly.

Minutes from the last Federal Reserve meeting are due this week and will help gauge how serious members were about keeping rates up or hiking again.

Early Monday, markets seemed to think developments in the Middle East would weigh against further hikes by the Fed, and perhaps policy easing next year.

Fed funds futures now have an 86% chance that rates will remain in place in November, and prices for 2024 have been cut by about 75 basis points.

China also returned from holidays this week with a flood of data including consumer and producer inflation, trade, credit and lending growth.

News coming out of the Middle East could sour the start of corporate earnings season, with 12 S&P 500 companies reporting this week, including JPMorgan, Citi and Wells Fargo.

Goldman Sachs saw sales increase 2%, with margins falling 55 basis points to 11.2% and EPS flat compared to last year.

“Near-trend economic growth and an easing of inflationary pressures should support modest sales growth and modest margin improvement,” Goldman analysts said in a note.

“However, substantial margin expansion is unlikely given the ‘high for a long time’ interest rate regime, inflexible wage growth and AI investments among some tech companies.”

Reporting by Wayne Cole; Editing by Sri Navaratnam and Sonali Paul

Our Standards: The Thomson Reuters Trust Principles.

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