(Bloomberg) — Global markets were roiled by reports of a new conflict in the Middle East, sending stock prices tumbling, while oil and port assets including Treasures and the dollar rallied.
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Gains for Treasuries sent 10-year yields about 10 basis points lower, offsetting recent selling pressure. An index of the dollar rose, while other havens including the Swiss franc, yen and gold also strengthened.
Oil prices rose more than 3%, with Brent crude briefly reaching $90 per barrel and West Texas Intermediate spiking to nearly $86 per barrel.
The action focused on unconfirmed reports of explosions in Iran, Iraq and Syria, amid expectations that Israel would respond to attacks from Iran last weekend.
Futures contracts for the S&P 500 and Nasdaq 100 fell more than 1% after the underlying benchmarks fell for a fifth session on Thursday, amid repricing of Federal Reserve expectations for rate cuts. Asian shares also fell on Friday. Japanese and South Korean shares fell more than 2%, while Australian and Hong Kong shares fell more than 1%. Benchmarks in mainland China were mixed.
“The escalation of geopolitical risks was unexpected,” said Charu Chanana, strategist at Saxo Capital Markets. “Semiconductor revenues face a monumental task to address this increasing risk environment, with geopolitical escalations also clouding the outlook.”
Taiwan Semiconductor Manufacturing Co. fell after the company downgraded its sales growth outlook for the semiconductor industry, citing a softer recovery in the smartphone and PC sectors. Infosys Ltd. slumped in the US after predicting tepid sales growth for the year.
Japan’s inflation figures released on Friday were below economists’ expectations. A growing number of economists expect the BOJ to raise rates again in October after holding them steady next week, with most of them flagging an earlier move in July as a risk scenario, a Bloomberg survey shows.
New York Fed President John Williams said that while his baseline expectation is not to raise rates, it is possible — if warranted. His colleague Raphael Bostic of Atlanta said he does not think it is appropriate to ease interest rates until the end of 2024. The Fed could keep rates steady throughout the year, Neel Kashkari, head of the Minneapolis Fed, told Fox News Channel.
The market’s biggest concern right now is accelerating inflation again, said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.
“We are firmly in the camp of no rate cuts in 2024,” he said. “We believe that investors should prepare for a ‘higher-for-longer’ regime when it comes to both inflation and interest rates, and that investment portfolios should be positioned for these dynamics for the foreseeable future.”
Most Asian emerging market currencies fell. The Indonesian rupiah will be closely watched when trading resumes after the government asked state-owned companies to refrain from large dollar purchases, expecting the currency to weaken further.
Elsewhere, gold’s rise has been boosted by demand from central banks and Chinese consumers.
Israel suffered its first ever sovereign downgrade when S&P Global Ratings downgraded its credit rating from AA- to A+ due to increased geopolitical risks to the region, even before Friday’s reports of unrest.
Main events this week:
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BOE Deputy Governor Dave Ramsden and ECB Governing Council Member Joachim Nagel speak on Friday
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Chicago Fed President Austan Goolsbee will speak on Friday
Some of the major moves in the markets:
Shares
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S&P 500 futures fell 1.3% as of 11 a.m. Tokyo time
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NASA 100 futures fell 1.6%
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Japan’s Topix fell 2.3%
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Australia’s S&P/ASX 200 fell 1.5%
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Hong Kong’s Hang Seng fell 1.2%
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The Shanghai Composite had changed little
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Euro Stoxx 50 futures fell 2.2%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro fell 0.2% to $1.0620
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The Japanese yen rose 0.3% to 154.18 per dollar
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The offshore yuan was little changed at 7.2568 per dollar
Cryptocurrencies
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Bitcoin fell 4.1% to $60,938.5
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Ether fell 4.5% to $2,933.15
Bonds
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The yield on ten-year government bonds fell by 10 basis points to 4.53%
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The Japanese ten-year yield fell by four basis points to 0.825%
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The Australian ten-year yield fell by four basis points to 4.24%
Raw materials
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West Texas Intermediate crude rose 3.2% to $85.35 a barrel
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Spot gold rose 1.3% to $2,410.27 an ounce
This story was produced with the help of Bloomberg Automation.
–With help from John Cheng.
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