Sentiment stabilises on Mideast diplomacy efforts: markets wrap
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 on 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 the 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 semiconductors and chip manufacturing 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 centre-right government on Saturday. Poland’s zloty jumped as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.
Big Tech sold off on Friday in New York, with the Nasdaq 100 down over 1%. Boeing sank after saying it’s investigating quality issues affecting the 737 Max aircraft. JPMorgan Chase & Co and Wells Fargo 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 favours 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 signalling the peak of rates has been reached and keeping the debate on pace and timing of cuts down the road.”