Business

Treasuries Fall Amid Efforts to Calm Middle East: Markets Wrap

October 16, 2023

(Bloomberg) — US equity futures gained 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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The run for haven assets seen last week eased as markets wait on further developments in the Middle East. Treasury 10-year yields rose five basis points on Monday after dropping 19 basis points last week.

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 gains made Friday 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.

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%.

“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.

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

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 rose 0.3% as of 9:26 a.m. Tokyo 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 0.9%
Australia’s S&P/ASX 200 fell 0.2%
The Kospi declined 1.2%
The Hang Seng Index slid 0.5%
China’s CSI 300 was down 0.8%