(Bloomberg) — Treasuries rallied and crude oil rose on signs Israel is preparing for a ground invasion of Gaza.
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The 10-year Treasury yield dropped five basis points, paring some of Thursday’s sharp rise in the wake of hotter-than-expected US inflation data. Brent crude rose more than 2% and headed for the biggest weekly gain in six on fears the Israel-Hamas war could destabilize the Middle East and crimp global supply.
An escalation of Israel’s war with Hamas, drawing in Iran, could send crude oil to $150 a barrel and cut about $1 trillion off world economic output, according to Bloomberg Economics. Meanwhile, the prospect of higher-for-longer US interest rates and continued weakness in China’s economy also weighed on risk appetite. Swap contracts pushed the odds of another quarter-point Fed hike to about 40% — from closer to 30% Wednesday after hot US consumer price data.
European stocks dipped, while US futures edged higher. The third-quarter earnings season is starting on Friday with reports from JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.
The Stoxx Europe 600 slipped about 0.2%, though gains for energy stocks moderated the decline. Among individual movers, Tryg A/S jumped as much as 4.6% after the Danish insurer reported an earnings beat. Ubisoft Entertainment advanced after the UK approved Microsoft Corp.’s deal to buy Activision Blizzard Inc., following the US tech giant’s offer to sell some gaming rights to the French video-game maker. Sartorius AG plunged after the electronics maker cut guidance.
MSCI’s All Country World Index fell for a second day, with major Asian benchmark indexes in the red. Hong Kong shares underperformed and mainland Chinese shares slipped after both consumer and producer prices came in below estimates, a sign that the country’s economy still faces drags despite the government rolling out a series of support measures.
Asian equities were also hurt as China’s trade data was only slightly better than expectation. The authorities are now also considering forming a state-backed stabilization fund to shore up confidence in the nation’s $9.5 trillion stock market.
Read more: China Weighs New Stabilization Fund to Prop Up Stock Market
The Fed will want flexibility optionality around an additional rate hike, “just given the fact that inflation could stall out at a higher level,” Nadia Lovell, senior equity strategist at UBS Global Wealth Management, said on Bloomberg Television. “It’s a much easier to tilt hawkish in an environment where economic growth is strong and then dial that back if you need to than to be dovish just in case inflation surprises to the upside.”
Key events this week:
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Eurozone industrial production, Friday
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US University of Michigan consumer sentiment, Friday
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Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
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G20 finance ministers and central bankers meet as part of IMF gathering, Friday
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ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
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Fed’s Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.1% as of 9:07 a.m. London time
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S&P 500 futures rose 0.2%
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Nasdaq 100 futures rose 0.1%
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Futures on the Dow Jones Industrial Average rose 0.3%
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The MSCI Asia Pacific Index fell 1.2%
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The MSCI Emerging Markets Index fell 1%
Currencies
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The Bloomberg Dollar Spot Index fell 0.2%
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The euro rose 0.3% to $1.0557
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The Japanese yen rose 0.1% to 149.62 per dollar
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The offshore yuan was little changed at 7.3084 per dollar
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The British pound rose 0.4% to $1.2218
Cryptocurrencies
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Bitcoin rose 0.6% to $26,887.82
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Ether rose 1% to $1,551.4
Bonds
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The yield on 10-year Treasuries declined six basis points to 4.64%
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Germany’s 10-year yield declined three basis points to 2.75%
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Britain’s 10-year yield declined three basis points to 4.39%
Commodities
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Brent crude rose 2.2% to $87.85 a barrel
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Spot gold rose 0.8% to $1,883.35 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu, Michael Msika and Tassia Sipahutar.
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