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Major market averages opened Wednesday’s trading session to the downside as Wall Street holds a risk-off stance with the growing worries about a widening Middle East conflict.
Early on, the Nasdaq Composite (COMP.IND) declined by 0.5%, the S&P 500 (SP500) slid by 0.4%, and the Dow (DJI) was lower by 0.2%.
From a sector point of view, 8 of the 11 S&P segments started trading off in the red and were led lower by Industrials. In reverse, the Energy sector started the trading session as the top performer.
“An explosion at a hospital in Gaza has subtly shifted financial markets’ response to the Israel-Hamas war,” UBS’ Paul Donovan said. “Initially markets gave little weight to the risk of a wider conflict. Since the explosion, the Palestinian, Egyptian, and Jordanian leaders have canceled meetings with US President Biden. While safe-haven flows still seem to be muted, the gold price is now back in the range seen over the summer, and oil prices have moved a little higher.”
At the start of trading, gold (XAUUSD:CUR) was up by 1.4% as it hovered near $1,963 and oil (CL1:COM) was higher by 0.7% at $88.60. See how all commodities are trading.
Rates remained mostly unchanged on the shorter end, while the longer end ticked higher. The 10-year Treasury yield (US10Y) was up 3 basis points to 4.87% after closing at the highest level since 2007 on Tuesday. The 2-year yield (US2Y) dropped 1 basis point to 5.20%.
See how yields are trading across the curve.
Positive economic data yesterday “meant that investors priced in a growing chance of another rate hike from the Fed,” Deutsche Bank’s Jim Reid said. “In fact, futures were pricing in a 59.5% chance of another hike by the close yesterday, which is the first time that’s been above 50% since October 3.”
“In addition, they moved to price out the chances of cuts in 2024, with the rate priced in by the December 2024 meeting up +11.9bps on the day to a new cycle high of 4.78%.”
September housing starts and building permits arrived with housing starts coming in at 1.358M versus the anticipated 1.38M figure. Building permit data was seen at 1.473M versus the consensus thought of 1.45M
“Monthly noise aside … the trend in housing starts is flattening following the summer rebound, thanks in large part to the recent renewed drop in mortgage demand to new cycle lows,” Pantheon Macro’s Ian Shepherdson said. The “recent plunge in the NAHB index of homebuilders’ sentiment, by 16 points between July and October, suggests that the latest drop in mortgage applications is dramatically tempering their enthusiasm.”
Sentiment in the housing market has slumped, and “this, in turn, suggests that the flattening in housing starts will continue into the fourth quarter and into early 2024.”