Stocks Waver, Bonds Drop With Middle East in Focus: Markets Wrap

(Bloomberg) — European stocks fluctuated and US equity futures inched higher while Treasuries dropped as traders tracked efforts by the US and its allies to prevent further escalation of the Israel-Hamas conflict.

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Mining stocks outperformed in Europe, while oil shares were buoyed by recent strength in crude prices in the wake of the war in the Middle East. Polish stocks jumped the most since May 2022 and the zloty gained as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.

Markets steadied after last week’s rush into haven assets, as traders await further developments in the Middle East. S&P 500 contracts posted slight gains on Monday. Treasury 10-year yields rose more than 6 basis points after dropping 19 basis points last week. Gold declined more than 1%.

Oil prices traded in a narrow range as US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. A sharper escalation could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group.

“For now, it is very tragic, but concentrated in that specific country. I’m sure that the headlines will remain very unpleasant for some time to come. But I also think that markets can go up regardless,” said Mark Matthews, head of Asia research at Julius Baer, on Bloomberg Television.

A gauge of Asian shares slipped as stocks dropped in mainland China despite the central bank making the biggest medium-term liquidity injection since 2020.

Headwinds in China’s markets are growing. The US has moved to tighten curbs on advanced chip technology and concerns continue about the mainland property sector. The People’s Bank of China injected a net 289 billion yuan ($39.6 billion) via a medium-term lending facility on Monday and kept the policy rate unchanged at 2.5%.

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“The PBOC continues to show an easing bias in today’s operation,” said Becky Liu, head of China macro strategy at Standard Chartered Bank. “We hold our view that China rates remain a lower-for-longer story on the back of likely continued subpar growth during the current period of economic transition.”

The US said it will tighten sweeping measures that restrict China’s access to advanced semi-conductors and chip making gear in a bid to prevent its geopolitical rival from getting a military edge.

Elsewhere in currencies, a gauge of dollar strength edged lower, while New Zealand’s dollar led gains among major peers after the country elected a center-right government on Saturday.

Click here for the latest news in the Israel-Hamas conflict

Traders are also keeping a close eye on the latest economic data and parsing comments from central bank officials for clues on the policy outlook. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data, despite a lift in US consumers’ year-ahead inflation expectations in early October.

Key updates on the state of the global economy due this week include Chinese growth figures, inflation readings in Japan, the UK and the euro zone. Meanwhile, Fed chairman Jerome Powell is set to speak later this week following a string of stronger-than-expected data readings.

“Markets and policymakers have absorbed strong employment data and slightly higher inflation readings,” said Klaus Baader, global chief economist at Societe Generale. “Despite it all, Fed officials are signaling the peak of rates has been reached and keeping the debate on pace and timing of cuts down the road.”

Key events this week:

• Russian Foreign Minister Sergei Lavrov visits China, Monday

• US Treasury Secretary Janet Yellen meets with euro-area finance ministers in Luxembourg, Monday

• European Central Bank governing council member François Villeroy de Galhau speaks, Monday

• Bank of England chief economist Huw Pill speaks, Monday

• US Empire Manufacturing index, Monday

• Philadelphia Fed President Patrick Harker speaks, Monday

• Chinese President Xi Jinping hosts world leaders at the Belt and Road Initiative forum in Beijing, with Russian President Vladimir Putin expected to attend, Tuesday

• Germany ZEW survey expectations, Tuesday

• UK jobless claims, unemployment, Tuesday

• Joint European Central Bank/IMF policy and research conference, Tuesday

• US retail sales, business inventories, industrial production, cross-border investment, Tuesday

• Goldman Sachs, Bank of America earnings, Tuesday

• New York Fed President John Williams moderates discussion, while Richmond Fed President Tom Barkin speaks at a separate event, Tuesday

• Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday

• China GDP, retail sales, industrial production, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• Morgan Stanley, Netflix, Tesla earnings, Wednesday

• Federal Reserve issues Beige Book economic survey, Wednesday

• Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday

• Australia unemployment, Thursday

• Japan trade, Thursday

• China property prices, Thursday

• US initial jobless claims, Thursday

• Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday

• Japan CPI, Friday

• China loan prime rates, Friday

• President Joe Biden hosts the European Union’s Ursula von der Leyen in Washington, Friday

• Philadelphia Fed President Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 8:26 a.m. London time

• S&P 500 futures rose 0.2%

• Nasdaq 100 futures were little changed

• Futures on the Dow Jones Industrial Average rose 0.2%

• The MSCI Asia Pacific Index fell 1%

• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%

• The euro rose 0.2% to $1.0528

• The Japanese yen was little changed at 149.59 per dollar

• The offshore yuan was little changed at 7.3155 per dollar

• The British pound rose 0.2% to $1.2170

Cryptocurrencies

• Bitcoin rose 2.5% to $27,890.25

• Ether rose 1% to $1,579.87

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.68%

• Germany’s 10-year yield advanced four basis points to 2.77%

• Britain’s 10-year yield advanced five basis points to 4.43%

Commodities

• Brent crude fell 0.2% to $90.72 a barrel

• Spot gold fell 1.1% to $1,911.27 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Wenjin Lv and Matthew Burgess.

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