A reflection of passers-by is seen walking on an electronic board showing the Japanese Nikkei average outside a brokerage shop in Tokyo, Japan, March 20, 2023. Portal/Androniki Christodoulou/File Photo Acquire License Rights
- Asian stock markets:
- Oil prices rise over 5% due to hostilities in the Middle East
- Safe-haven government bonds, gold and yen are all rising
- Markets are pricing in further Fed rate cuts next year
SYDNEY, Oct 9 (Portal) – U.S. stock futures fell in Asia on Monday as the military conflict in the Middle East boosted oil and government bonds, while a hot U.S. September jobs report raised interest rates on inflation figures later in the week lifted.
The holidays in Japan and South Korea made for poor conditions, but the first bid was for bonds and the safe havens of Japanese yen and gold, with the euro the biggest loser.
“The risk is higher oil prices, a fall in stock markets and a rise in volatility supporting the dollar and yen and undermining ‘risk currencies,'” CBA analysts said in a note.
In particular, there is a possibility that oil supplies from Iran could be disrupted, they added.
“Given the stress that physical oil markets are already facing in the fourth quarter of 2023, an immediate decline in Iranian oil exports risks pushing Brent futures above $100 per barrel in the near term.”
Israel bombed the Palestinian enclave of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history, when the Islamist group Hamas killed 700 Israelis and kidnapped dozens more.
The threat of supply disruptions was enough to send the price of Brent rising $4.24 to $88.82 a barrel, while U.S. crude rose $4.26 to $87.05 a barrel.
Gold was also in demand, rising 0.8% to $1,848 an ounce.
In foreign exchange markets, the yen was the main winner, although overall moves were modest. The euro fell 0.3% to 157.44 yen, while the dollar fell 0.1% to 149.14 yen. The euro also fell 0.2% against the dollar to $1.0566.
The cautious sentiment was a balm for Treasuries after recent heavy selling and 10-year Treasury futures gained a respectable 11 ticks. Yields were reported at around 4.75%, compared to 4.81% on Friday.
Betting on Fed easing
Any sustained rise in oil prices would act like a tax on consumers, adding to inflationary pressures that 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%.
With Tokyo closed, Nikkei futures traded down 0.8%, nearing the end of the spot market on Friday.
MSCI’s broadest index of Asia-Pacific stocks outside Japan (.MIAPJ0000PUS) was flat, while Chinese blue chips (.CSI300) fell 1.1% after returning from the holidays.
The strength of the US jobs report had raised expectations that interest rates would have to stay elevated for longer, with another big test looming in September with consumer price data.
The average forecast is for a 0.3% increase in both headline and core metrics, which should slow the annual pace of inflation somewhat.
Minutes from the Federal Reserve’s latest meeting are due out this week and will help gauge how serious members are about keeping interest rates high or even raising them again.
Early Monday, markets appeared to expect developments in the Middle East to prevent further Fed rate hikes and potentially accelerate monetary easing next year.
Fed funds futures now suggested there was an 86% chance of rates remaining unchanged in November, with cuts of around 75 basis points priced in for 2024.
China also returns from vacation this week with a barrage of data, including consumer and producer inflation, trade, credit and loan growth.
News from the Middle East could cloud the start of corporate earnings season, with 12 S&P 500 companies reporting this week, including JP Morgan, Citi and Wells Fargo.
Goldman Sachs expects revenue to grow 2%, margins to decline 55 basis points to 11.2% and earnings per share to be flat compared to last year.
“Near-trend economic growth and easing inflation pressures will support moderate revenue growth and modest margin improvement,” Goldman analysts supported in a note.
“However, significant margin expansion is unlikely given interest rates higher in the longer term, robust wage growth and AI investments by some tech companies.”
Reporting by Wayne Cole; Editing by Shri Navaratnam and Sonali Paul
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