Oil climbed after Hamas’ surprise attack on Israel raised fears of a broader conflict, with investors shunning riskier assets like stocks and buying gold, global bonds and the dollar.
(Bloomberg) — Oil climbed after Hamas’ surprise attack on Israel raised fears of a broader conflict, with investors shunning riskier assets like stocks and buying gold, global bonds and the dollar.
US crude futures rose as much as 5.4%. Defense company Lockheed Martin Corp. and energy producer Exxon Mobil Corp. rallied, while airlines fell. Stocks with exposure to Israel, especially those tied to chips and software, slipped. Teva Pharmaceutical Industries Ltd. and Check Point Software Technologies Ltd. slumped in US trading. The shekel dropped even after the central bank unveiled a $45 billion support program. Gas prices in Europe soared. The Treasury market is closed for Columbus Day.
“The best measure of whether the conflict has negative staying power will be the price of oil,” said David Donabedian, chief investment officer of CIBC Private Wealth US. “That will be the biggest risk that could hurt the economy, corporate profits and inflation. A supply shock in oil raises the cost of doing business.”
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Deadly attacks by Palestinian militant group Hamas on Israel have turned attention toward Iran, with the potential to draw Tehran’s other proxies across the Middle East into an escalating conflict. A heightened war would likely sustain higher oil prices due to disruption to ships transiting the energy-rich Persian Gulf. It would also set back US-led diplomatic efforts to ease tensions in the region.
The latest Middle East conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management
“Against this backdrop, we continue to prefer fixed income to equities,” Marcelli noted. “We see a better risk-reward profile for fixed income, and we recommend investors consider buying high-quality bonds in the 5-10-year maturity range. We foresee further cooling in inflation and slower global growth.”
Read: Five Key Charts to Watch in Global Commodities This Week
Traders are also wading through remarks from Federal Reserve officials for clues on the outlook for monetary policy. Fed Bank of Dallas President Lorie Logan said the recent surge in long-term Treasury yields may mean less need for the US central bank to raise its benchmark interest rate again.
“Logan is a hawk. She is backing off,” said Neil Dutta, head of economics at Renaissance Macro Research. “The Fed will be going into 2024 having not hiked at three consecutive meetings.”
Speaking separately at an American Bankers Association event Monday, Fed Vice Chair for Supervision Michael Barr downplayed results of a monthly Bureau of Labor Statistics report published Oct. 6, which showed stronger-than expected employment growth in September.
Goldman Sachs Group Inc. economists said the surge in Treasury yields to historically high levels over the last several weeks will crimp economic growth and sow financial risks, though the bank is still not calling for a recession.
US stocks reeling from the impact of high bond yields are facing a new threat from an expected slew of profit warnings, triggered by fading US consumer spending trends.
Concerned that Americans might be pulling back, 80% of 567 respondents in the Bloomberg Markets Live Pulse survey said that some sectors are likely to caution about earnings trends when they report quarterly results.
Read: JPMorgan, Citi Gird For Recession Risk: US Earnings Week Ahead
The next risk to US stocks could come from fiscal policy constraints at a time when the Fed is still fighting high inflation, according to Morgan Stanley’s Michael Wilson. The strategist — among the most prominent bearish voices on Wall Street — said while the US government narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.
BlackRock Inc. Vice Chairman Philipp Hildebrand said the International Monetary Fund should frame discussions this week around the new economic reality, where central banks are less able to support growth by cutting interest rates.
“We are going to be in a much more sticky inflation environment and rates will not be able to come down to respond to weakness,” Hildebrand said in an interview with Bloomberg TV on Monday. “That should be the framing of the IMF and I hope they start to pay attention to these new structural conditions.”
Key events this week:
- Bank of England releases minutes of financial policy meeting, Tuesday
- IMF issues its latest world economic outlook, Tuesday
- US wholesale inventories, Tuesday
- Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly speak at separate events, Tuesday
- Germany CPI, Wednesday
- NATO defense ministers meeting in Brussels, Wednesday
- Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
- US PPI, Wednesday
- Minutes of Fed’s September policy meeting, Wednesday
- Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday
- Japan machinery orders, PPI, Thursday
- Bank of Japan’s Asahi Noguchi speaks, Thursday
- UK industrial production, Thursday
- US initial jobless claims, CPI, Thursday
- European Central Bank publishes account of September policy meeting, Thursday
- Fed’s Raphael Bostic speaks, Thursday
- China CPI, PPI, trade, Friday
- Eurozone industrial production, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
- G20 finance ministers and central bankers meet as part of IMF gathering, Friday
- ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
- Fed’s Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.1% as of 11:58 a.m. New York time
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 0.3%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.4% to $1.0540
- The British pound fell 0.3% to $1.2204
- The Japanese yen rose 0.4% to 148.70 per dollar
Cryptocurrencies
- Bitcoin fell 1.6% to $27,463.5
- Ether fell 3% to $1,587.22
Bonds
- The yield on 10-year Treasuries was little changed at 4.80%
- Germany’s 10-year yield declined 11 basis points to 2.77%
- Britain’s 10-year yield declined 10 basis points to 4.48%
Commodities
- West Texas Intermediate crude rose 4.3% to $86.33 a barrel
- Gold futures rose 1.1% to $1,865.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric.
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