(Bloomberg) – A new conflict in the Middle East has spooked global markets, sending stocks lower but pushing haven assets like oil and treasure and the dollar higher.
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The rise in U.S. Treasuries pushed the 10-year Treasury yield down by as much as 14 basis points. The dollar index rose by up to 0.6%, and other currencies such as the Swiss franc, yen and gold also rose.
Two U.S. officials said the move comes less than a week after Tehran launched a barrage of rockets and drones, prompting Israel to launch a missile attack on Iran, raising concerns that the conflict could escalate across the Middle East. It was carried out in the midst of a rising tide. However, the market eased some of its risk-off moves after Iran announced that its Isfahan nuclear facility is safe.
Oil prices rose more than 4%, with Brent crude rising above $90 per barrel before falling back below that level. A measure of credit default swaps in Asia ex-Japan is also heading for its biggest daily increase in more than eight months.
Futures contracts for the S&P 500 and Nasdaq 100 fell nearly 1% as fundamental indexes fell in the fifth session on Thursday as expectations for Federal Reserve interest rate cuts rose again. Asian stocks also fell on Friday, with Japanese, Korean, Australian and Hong Kong stocks falling.
“The rise in geopolitical risks was unexpected,” said Charu Chanana, a strategist at Saxo Capital Markets. “Semiconductor revenues face significant challenges in countering this growing risk-off environment, and geopolitical escalation also clouds the outlook.”
Taiwan Semiconductor Manufacturing Co. fell after the company lowered its earnings growth outlook for the chip industry, citing slower recovery in the smartphone and computer sectors as a whole. Infosys slumped in the US despite forecasting modest sales growth this year.
Japan’s inflation data released on Friday was lower than economists expected. A Bloomberg survey found that a growing number of economists expect the Bank of Japan to raise rates again in October after keeping rates unchanged next week, with most pointing to a July hike as a risk scenario.
Meanwhile, New York Fed President Williams said that while raising interest rates was not a fundamental expectation, it was possible if justified. Atlanta Fed President Rafael Bostic said he doesn’t think it’s appropriate to ease until near the end of 2024. Minneapolis Fed President Neel Kashkari told Fox News Channel that the Fed could keep interest rates on hold for the rest of the year.
Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, said the biggest concern in the market right now is that inflation will accelerate again.
“We are firmly in the camp of not cutting interest rates in 2024,” he said. “We believe investors need to prepare for a prolonged period of high levels of both inflation and interest rates, and investment portfolios should be able to respond to these developments for the foreseeable future.”
Most Asian emerging market currencies fell, with the Mexican peso falling more than 6% against the dollar before recouping most of its losses. The Indian rupee has fallen to record lows again.
Elsewhere, Bitcoin fell as part of a broader decline in cryptocurrencies.
Israel received a sovereign rating downgrade as S&P Global Ratings downgraded its credit rating from AA- to A+ citing heightened geopolitical risks in the region.
This week’s main events:
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BOE Deputy Governor Dave Lumsden and ECB Board Member Joachim Nagel speak on Friday
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Chicago Fed President Austan Goolsby speaks on Friday
The main movements in the market are:
stock
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S&P 500 futures were down 0.8% as of 1:44 p.m. Tokyo time.
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Nikkei 225 futures (OSE) fell 2.6%
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Japan’s TOPIX fell 1.7%
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Australia’s S&P/ASX 200 falls 1.2%
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Hong Kong’s Hang Seng fell 1.2%.
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The Shanghai Composite fell 0.4%.
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Euro Stoxx50 futures fall 1.4%
currency
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Bloomberg Dollar Spot Index rose 0.2%
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The euro was almost unchanged at $1.0638.
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The Japanese yen rose 0.1% to 154.41 yen to the dollar.
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The offshore yuan was almost unchanged at 7.2464 yuan to the dollar.
cryptocurrency
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Bitcoin fell 1.6% to $62,481.53.
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Ether fell 2.2% to $3,003.61.
bond
merchandise
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West Texas Intermediate crude rose 1.8% to $84.25 per barrel.
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Spot gold rose 0.1% to $2,381.66 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from John Cheng.
(A previous version was corrected to remove reference to Israel’s first-ever downgrade.)
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