A look at the day ahead in European and global markets by Tom Westbrook:
The escalation in the Middle East has rounded off a tough week for the financial markets. Barring a turnaround, world stocks are expected to post their sharpest weekly decline since September and the dollar is at a year-to-date high.
Even before Asian markets finally turned risk-averse following reports of explosions in Iran and an Israeli attack, investors were rocked by disappointing results and aggressive Fedspeak.
Then reports of attacks on Isfahan, Iran, pushed gold above $2,400 an ounce, Brent oil above $90 a barrel and demand for dollars and yen. Stocks fell and bonds rose.
The lack of detail on early shipment damage caused traders to pull back some of their flight to safety, but volatility was hardly comfortable heading into the weekend.
It is worrying because it fits in with other negative developments for the markets during the week and has led to a renewed rally in commodities that will increase inflationary pressures.
Iran is OPEC’s third largest oil producer, pumping 3% of total world production. Oil is up 16% in 2024. Copper, an industrial metal, is up 14%.
On Thursday, New York Fed President John Williams expressed a risk for which markets are ill-prepared: “If the data tells us we need higher interest rates to achieve our goals, then obviously we would want to do that. ” he said.
U.S. Treasury yields fell sharply on Friday, but the benchmark 10-year yield has risen more than 35 basis points this month as expectations for rate cuts this year fade.
Shares of Taiwanese chipmaker TSMC fell 6% as it disappointed investors by lowering its outlook for the sector, dragging down technology and chipmaking stocks globally.
The rapid gains for the yen and Swiss franc, especially at crossroads, show that markets are about to unwind carry trades that can deteriorate quickly under volatile conditions.
Second degree data due later in the day will likely be overshadowed by geopolitics.
Key developments that could affect the markets on Friday:
German producer prices
UK retail sales
US revenues; American Express, Procter & Gamble
(Editing by Jacqueline Wong)
