This Content Is Only For Paid Member
Asian stock markets displayed mixed performance on Monday as geopolitical tensions in the Middle East, particularly Israel’s actions in Gaza, fueled concerns about a broader conflict. These concerns coincided with central bank meetings scheduled in the United States, Britain, and Japan, with speculation about a possible policy tightening by the Bank of Japan.
In addition to these geopolitical and monetary policy factors, the ongoing earnings season has contributed to market uncertainties. Companies like Apple, Airbnb, McDonald’s, Moderna, and Eli Lilly & Co are among those reporting their financial results this week, and thus far, these results have been underwhelming. This lackluster performance has led to the S&P 500 entering correction territory.
The stock market’s recent movements have raised concerns, especially as the S&P 500 struggles to defend a critical support level at 4,200. If it fails to do so, there’s a risk of the index dropping to the 200-week moving average at 3,941, before any significant recovery can be expected.
In the early trading hours of Monday, S&P 500 futures made a minor recovery, rising by 0.4% to reach 4,153.5. Nasdaq futures showed a similar upward trend, gaining 0.5%. On the other hand, EUROSTOXX 50 futures declined by 0.1%, while FTSE futures increased by 0.2%.
The ongoing Middle East crisis has tempered risk appetite in global markets. Israel’s actions in what it has declared as the “second phase” of a three-week conflict against Iranian-backed Hamas militants have raised concerns.
In the Asia-Pacific region, the MSCI’s broadest index outside of Japan saw a marginal decrease of 0.04%, reaching a one-year low last week. In contrast, Chinese blue-chip stocks showed an increase of 0.6%.
In other market developments, shares of China Evergrande Group saw a significant morning drop, declining by as much as 23%. However, they later recovered some of those losses to stabilize at a 5% decrease after the Hong Kong High Court adjourned a request to wind up the embattled property developer.
As the week progresses, investors will closely monitor central bank decisions, earnings reports, and other geopolitical developments. The Federal Reserve is expected to maintain its current interest rates, given the recent surge in long-term Treasury yields. Yields on 10-year Treasuries stood at 4.8751% on Monday, having risen by 30 basis points this month and briefly touching 16-year highs at 5.021%. The Fed’s decision will be reinforced by the expected increase in market borrowing costs.
Looking ahead, job figures due on Friday are anticipated to show a solid increase of 188,000 in U.S. payrolls for October, following September’s impressive gains. However, there is an expectation that the annual growth in average earnings will slow down from 4.2% to 4.0%.
The Bank of England’s decision this week is also in focus, with approximately a 70% chance that it will keep its policy unchanged after a series of tightening measures.
Surprisingly, the recent surge in U.S. yields has not resulted in a stronger U.S. dollar. Geopolitical uncertainties related to the Middle East and the ongoing conflict between Hamas and Israel have not significantly impacted the dollar’s strength against risk-sensitive currencies.
The dollar has remained relatively steady against a basket of currencies at 106.56, staying within a range of 105.350 to 106.890 observed last week. It showed little movement against the yen, at 149.60, remaining below the high of 150.78 reached last week. Meanwhile, the euro remained stable at $1.0563, with minimal changes observed throughout the month.
In the commodities market, gold maintained its stability, trading at $1,998 an ounce. Oil prices, however, declined due to concerns about demand that outweighed the risks related to Middle East supply disruptions. Brent crude lost $1, falling to $89.45 a barrel, while U.S. crude dropped $1.13 to $84.41. These developments will continue to influence market sentiment as investors await further news on the geopolitical, economic, and central bank fronts.
