US Equity Futures Advance on Middle East Efforts: Markets Wrap

(Bloomberg) — US equity futures inched higher while Treasuries and the dollar slipped, in a sign that traders are weighing the efforts by the US and its allies to prevent further escalation of the Israel-Hamas conflict.

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Markets steadied after last week’s rush into haven assets, as traders await further developments in the Middle East. S&P 500 futures rose by about 0.1%, while European contracts fluctuated. Treasury 10-year yields rose more than 3 basis points on Monday after dropping 19 basis points last week. Gold declined 1%.

Meanwhile Japanese, Australian and South Korean shares declined, following on Friday’s decline by the S&P 500. Stocks slipped in mainland China despite the central bank making the biggest medium-term liquidity injection since 2020.

Oil held onto Friday’s gains and 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. In that scenario, Bloomberg Economics estimates oil prices may soar to $150 and tip the world economy into recession.

“For now, it is very tragic, but concentrated in that specific country. I’m sure that the headlines will remain a 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.

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.

In currencies, New Zealand’s dollar led gains among major peers after the country elected a center-right government on Saturday. Poland’s zloty jumped as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.

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Big Tech sold off on Friday in New York, with the Nasdaq 100 down over 1%. Boeing Co. sank after saying it’s investigating quality issues affecting the 737 Max aircraft. JPMorgan Chase & Co. and Wells Fargo & Co. gained on solid earnings.

Jamie Dimon on Friday warned of serious geopolitical risks from a widening Israel-Hamas conflict.

“This may be the most dangerous time the world has seen in decades,” the JPMorgan Chase & Co. chief executive officer said in the bank’s third-quarter earnings statement. “The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”

Disinflation Under Way

Traders also waded through the latest economic data and 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.

Markets will also be parsing key economic data this week to gauge the health of the global economy. Among the highlights are Chinese growth data, inflation readings in Japan and New Zealand as well as central bank decisions in China, Indonesia and South Korea. Meantime, 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

• S&P 500 futures gained 0.1% as of 6:20 a.m. London time. S&P 500 fell 0.5% in New York on Friday

• Nasdaq 100 futures rose 0.3%. The Nasdaq 100 dropped 1.2%

• Japan’s Topix fell 1.5%

• Australia’s S&P/ASX 200 fell 0.3%

• Hong Kong’s Hang Seng fell 0.5%

• China’s CSI 300 was down 0.8%

• The Kospi declined 1.02%

• Euro Stoxx 50 futures rose 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.2% to $1.0526

• The Japanese yen rose 0.1% to 149.42 per dollar

• The offshore yuan was little changed at 7.3119 per dollar

• The British pound rose 0.1% to $1.2161

Cryptocurrencies

• Bitcoin rose 0.3% to $27,280.49

• Ether was little changed at $1,564.15

Bonds

Commodities

• West Texas Intermediate crude was little changed

• Spot gold fell about 1% to $1,914.45 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Wenjin Lv.

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