Markets steadied on Monday in Asia, with US equity futures gaining and Treasuries falling as the US and its allies worked to prevent further escalation of the Israel-Hamas conflict.
Japanese, Australian and South Korean shares fell after the S&P 500 dropped on Friday, while the greenback and yen were steady in early trading Monday. Gold declined. Stocks slipped in mainland China despite the central bank making the biggest medium-term liquidity injection since 2020, while the offshore yuan edged higher.
US President Joe Biden is considering visiting Israel in the coming days as his officials held talks with Iran through back-channels to contain the Israel-Hamas war. A sharper escalation could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. In that scenario, Bloomberg Economics estimates oil prices may soar to $150 and tip the world economy into recession.
Headwinds in China’s markets are growing. The US has moved to tighten curbs on advanced chip technology and concerns continue about the mainland property sector. The People’s Bank of China injected a net 289 billion yuan ($39.6 billion) via a medium-term lending facility on Monday.
The large cash injection will sufficiently offset the demand for liquidity from the government bond supply this week, said Zhaopeng Xing, senior China strategist at Australia & New Zealand Banking Group Ltd.
“The tight liquidity may ease in second half of October, as the authorities mandated local governments to spend all money raised by bonds before the end of October,” he said.
The US said it will tighten sweeping measures that restrict China’s access to advanced semi-conductors and chip making gear in a bid to prevent its geopolitical rival from getting a military edge.
In currencies, New Zealand’s dollar led gains among major peers after the country elected a center-right government on Saturday. Poland’s zloty jumped as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.
Click here for the latest news in the Israel-Hamas conflict
Big Tech sold off on Friday in New York, with the Nasdaq 100 down over 1%. Boeing Co. sank after saying it’s investigating quality issues affecting the 737 Max aircraft. JPMorgan Chase & Co. and Wells Fargo & Co. gained on solid earnings. Treasury 30-year yields dropped 10 basis points to 4.75%, unwinding part of the previous session’s surge.
Jamie Dimon on Friday warned of serious geopolitical risks from a widening Israel-Hamas conflict.
“This may be the most dangerous time the world has seen in decades,” the JPMorgan Chase & Co. chief executive officer said in the bank’s third-quarter earnings statement. “The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”
Disinflation Under Way
Traders also waded through the latest economic data and comments from central bank officials for clues on the policy outlook. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data, despite a lift in US consumers’ year-ahead inflation expectations in early October.
Markets will also be parsing key economic data this week to gauge the health of the global economy. Among the highlights are Chinese growth data, inflation readings in Japan and New Zealand as well as central bank decisions in China, Indonesia and South Korea. Meantime, Fed chairman Jerome Powell is set to speak later this week following a string of stronger than expected data readings.
“Markets and policymakers have absorbed strong employment data and slightly higher inflation readings,” said Klaus Baader, global chief economist at Societe Generale. “Despite it all, Fed officials are signaling the peak of rates has been reached and keeping the debate on pace and timing of cuts down the road.”
Key events this week:
- Russian Foreign Minister Sergei Lavrov visits China, Monday
- US Treasury Secretary Janet Yellen meets with euro-area finance ministers in Luxembourg, Monday
- European Central Bank governing council member François Villeroy de Galhau speaks, Monday
- Bank of England chief economist Huw Pill speaks, Monday
- US Empire Manufacturing index, Monday
- Philadelphia Fed President Patrick Harker speaks, Monday
- Chinese President Xi Jinping hosts world leaders at the Belt and Road Initiative forum in Beijing, with Russian President Vladimir Putin expected to attend, Tuesday
- Germany ZEW survey expectations, Tuesday
- UK jobless claims, unemployment, Tuesday
- Joint European Central Bank/IMF policy and research conference, Tuesday
- US retail sales, business inventories, industrial production, cross-border investment, Tuesday
- Goldman Sachs, Bank of America earnings, Tuesday
- New York Fed President John Williams moderates discussion, while Richmond Fed President Tom Barkin speaks at a separate event, Tuesday
- Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday
- China GDP, retail sales, industrial production, Wednesday
- UK CPI, Wednesday
- Eurozone CPI, Wednesday
- Morgan Stanley, Netflix, Tesla earnings, Wednesday
- Federal Reserve issues Beige Book economic survey, Wednesday
- Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday
- Australia unemployment, Thursday
- Japan trade, Thursday
- China property prices, Thursday
- US initial jobless claims, Thursday
- Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- President Joe Biden hosts the European Union’s Ursula von der Leyen in Washington, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
- S&P 500 futures rose 0.3% as of 9:26 a.m. Tokyo time. S&P 500 fell 0.5% in New York on Friday
- Nasdaq 100 futures rose 0.3%. The Nasdaq 100 dropped 1.2%
- Japan’s Topix fell 0.9%
- Australia’s S&P/ASX 200 fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0516
- The Japanese yen was little changed at 149.55 per dollar
- The offshore yuan was little changed at 7.3080 per dollar
- The Australian dollar rose 0.1% to $0.6305
Cryptocurrencies
- Bitcoin fell 0.2% to $27,146.79
- Ether fell 0.5% to $1,556.77
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.66%
- Australia’s 10-year yield was little changed at 4.46%
Commodities
- West Texas Intermediate crude fell 0.4% to $87.30 a barrel
- Spot gold fell 0.5% to $1,923.82 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Iris Ouyang.
