2023-10-18 08:56:36
Global stocks stabilized on Wednesday, as investor concern over the risk of a worsening conflict in the Middle East translated into higher oil and gold prices.
Concern over the current geopolitical situation has been heightened by the prospect of high interest rates falling soon, following US data showing consumer spending rose in September.
Bond markets took a beating yesterday following U.S. retail sales rose more than expected last month, reinforcing expectations of stronger-than-expected economic growth in the third quarter.
Additionally, China reported annual economic growth of 4.9% in the third quarter, beating forecasts of 4.4%. Separate statements painted a picture of a more resilient consumer, suggesting Beijing’s stimulus measures might bear fruit.
Investor sentiment was fragile as Israeli and Palestinian authorities traded blame for the explosion that killed hundreds at a Gaza hospital, complicating US President Joe Biden’s already difficult trip to the region. .
The news helped push oil above $90 a barrel and boost the supply of gold, which typically struggles when bond yields rise, but it did not overshadow the outlook for interest rates and inflation, which were the driving force of the markets this Wednesday.
“The dominant force remains this reality of inflation and what it means for central banks and how American exceptionalism keeps alive the risk of upsetting the Fed in the future,” said Samy Chaar, chief economist at Lombard Odier.
“The dollar is not rising sharply and remains relatively stable. The only problem is bond yields – in the event of geopolitical tensions, one would expect bond yields to fall as a safe haven, but in reality , they increased.
Money markets show traders are betting more that the Federal Reserve will be forced to raise rates once more, following recently indicating it may not need to do so. The probability of a hike in November is still only 11%, but the probability for January has increased from 37% to 50%.
The market also lowered its expectations for anticipated rate cuts, forecasting no movement before June and expecting an easing of around 54 basis points for the whole of 2024.
GOODNESS IN TECHNOLOGY STOCKS
Stocks fell on Wednesday. The MSCI All-World Index fell 0.1%, while in Europe the STOXX 600 fell 0.2%.
Technology stocks, which tend to suffer from rising interest rates, came under pressure. Helping to dampen the sector was Nvidia’s stock slide Tuesday following the Biden administration announced plans to cut off shipments of more of its cutting-edge artificial intelligence chips to China.
Dutch semiconductor maker ASML was one of the biggest drags on the European market, falling 1.1% following warning of stagnant sales in 2024.
Markets now await results from Netflix and Tesla later in the session.
Government bonds, meanwhile, have tried to recoup some losses. Yields on two-year Treasury notes, which rose 14 basis points to a 16-year high on Tuesday, fell 2 basis points to 5.193%.
Ten-year yields remained stable at 4.851%, following closing the previous day up 11 basis points.
The Bank of Japan was forced to carry out an unscheduled purchase of JGBs to limit the rise in yields, while in the Eurozone, German 10-year yields rose for the third day, up 2, 5 basis points to 2.907%.
Further comments from the Fed are likely on Wednesday, with five officials expected to speak before Chairman Jerome Powell speaks on Thursday.
“We are in an environment where bad news is good news and the good news depends on whether it is good enough to push the Fed,” said Mohit Kumar, a strategist at Jefferies.
“We remain in the camp of slightly long positions on risky assets. But we are keeping our positions close to home given the geopolitical uncertainty,” he added.
Rising yields have kept the U.S. dollar stable once morest a basket of currencies.
Safe-haven flows lifted gold 0.8% to $1,938.39 an ounce, well above its recent low of $1,809.
Oil prices rose to two-week highs, boosted by concerns over the Middle East and data showing falling crude inventories.
Brent rose 2% to $91.77 a barrel, while U.S. crude rose 2.3% to $88.59 a barrel.
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