- Asian stock markets:
- Oil prices rise nearly 4% on Middle East hostilities
- Safe-haven Treasuries, gold and the yen all gained
- The Israeli central bank acts to support the currency
- Markets are pricing in Fed rate cuts for next year
SYDNEY, Oct 9 (Reuters) – U.S. stock futures fell on Monday as a military conflict in the Middle East lifted oil and Treasuries, while a September U.S. jobs report lifted the rate for inflation figures later in the week.
Holidays in Japan and South Korea were tepid, but early bids were for bonds and the safe havens of the Japanese yen and gold, while oil prices rose to more than $3 a barrel.
The Israeli shekel initially fell to 3.9880 per dollar, its lowest level since early 2015, prompting the country’s central bank to sell up to $30 billion in shekels.
The immediate move helped par the currency’s losses to 3.9050, while the central bank said it would provide liquidity to markets as needed.
“The risk is higher oil prices, declines in stocks, and a rise in volatility are supporting the dollar and yen, and undermining ‘risky’ currencies,” CBA’s analysts said in a note.
In particular, they added, there is a possibility of disruption of oil supplies from Iran.
“Given the tightening oil markets are already facing in Q4 2023, an immediate reduction in Iran’s oil exports risks pushing Brent futures above $100/bbl in the short term.”
Israel attacked the Palestinian enclave of Gaza on Sunday in retaliation for one of the bloodiest attacks in its history when the Islamist group Hamas killed 700 Israelis and kidnapped dozens more.
The risk of supply disruptions was enough to lift Brent by $3.14 to $87.72 a barrel, while US crude gained $3.28 to $86.07 a barrel.
Gold demand also rose 1.1% to $1,852 an ounce.
In currency markets, the yen was the main gainer, although moves were moderate overall. The euro was down 0.3% at 157.37 yen and the dollar was down 0.1% at 149.14 yen. The euro was also down 0.3% against the dollar at $1.0552.
The cautious mood is a salve for sovereign bonds after recent heavy selling and 10-year Treasury futures rose a substantial 12 ticks. The yield was 4.74%, up from 4.81% on Friday.
BET ON FED EASING
Any sustained rise in oil prices would act as a tax on consumers and add to inflationary pressures, which weighed on stocks as S&P 500 futures lost 0.8% and Nasdaq futures lost 0.7%.
EUROSTOXX 50 futures fell 0.4% and FTSE futures fell 0.1%.
Nikkei futures were down 1.0% at the close in Tokyo, close to where the money market ended on Friday.
MSCI’s broadest index of Asia-Pacific shares outside Japan ( .MIAPJ0000PUS ) was flat as Chinese blue chips ( .CSI300 ) fell 0.6% since the holiday.
The strength of the US jobs report fed expectations that interest rates will remain high for longer, with another big test coming from September consumer prices data.
Average forecasts are for a 0.3% gain in both headline and core measures, which should see the annual pace of inflation touch down.
Minutes from the last Federal Reserve meeting are due this week and will help gauge how serious members were about raising or hiking rates again.
Early on Monday, markets felt that developments in the Middle East would lean against further central bank hikes and could accelerate policy easing next year.
Fed funds futures now indicate an 86% chance rates are on hold in November, and 75 basis points lower in prices for 2024.
China also returns from vacation this week with a deluge of data including consumer and producer inflation, trade, credit and debt growth.
News from the Middle East could affect the start of the corporate earnings season, with 12 S&P 500 companies reporting this week, including JP Morgan, Citi and Wells Fargo.
Goldman Sachs sees 2% sales growth, 55 basis points margin contraction to 11.2% and flat EPS compared to last year.
“Economic growth in the near term and modest inflationary pressures will support moderate sales growth and slim margin improvement,” Goldman analysts said in a note.
“However, significant margin expansion is unlikely given the ‘high for longer’ interest rate regime, inelastic wage growth and AI investments among some technology firms.”
Reporting by Wayne Cole; Editing by Sri Navaratnam, Sonali Paul and Lincoln Feast
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