(Bloomberg) — A resurgence of geopolitical risks has spooked the financial world, sending stocks lower and prompting a flight to the safest corners of the market, including bonds and the dollar. Oil has risen.
Most Read Articles on Bloomberg
Stocks had their worst day since January after reports that Israel was preparing for Iranian attacks on government targets. About 40 shots were confirmed from Lebanese territory, some of which were intercepted, the Israel Defense Forces wrote in a post to X. US President Joe Biden has said he expects Iran to attack Israel sooner or later, and his message to Iran is: “Don't do it.
The VIX index, Wall Street's “fear gauge,” has soared to levels last seen in October.
Investors have become far too complacent when it comes to geopolitical issues, says Matt Maley of Miller Tabak.
“Gold and oil have priced in the crisis to have a significant impact on the market, so it's possible that the stock market will follow suit and we could see a big reaction soon,” Maley said. pointed out.
The S&P 500 index fell 1.5% on Friday, with banks and semiconductor manufacturers leading the losses. The index recorded its biggest weekly decline in 2024. The 10-year U.S. Treasury yield fell 7 basis points to 4.52%. Andrew Brenner of NatAlliance Securities also cited “massive short covering'' and interest rate locks ahead of a flurry of bond issuances by banks that are expected to occur after earnings.
The dollar had its best week since September 2022. Brent crude oil has settled above $90. Gold erased its gains after breaking above the $2,400 per ounce level.
As Iran threatens attack, here's how Israel defends itself: QuickTake
U.S. Treasuries rebounded sharply after two of the market's worst days since February, when yields hit new year-to-date highs after inflation data dashed hopes of a Federal Reserve rate cut this year. The two-year bond yield, which briefly topped 5% this week, fell sharply on Friday.
“Risk was off the menu on Friday,” said Fawad Razakzada of Citi Index and Forex.com. “Investors were keeping an eye on risk exposure ahead of the weekend and were concerned that if something were to happen, the risk asset gap would decline.”
According to Commerzbank analysts including Carsten Fritsch, a direct confrontation between Israel and Iran would mean a significant escalation of the conflict in the Middle East, leading to a significant rise in oil prices.
Rising geopolitical tensions (recently including tensions in the Middle East as well as Ukraine's attack on Russia's energy infrastructure) are fueling bullish activity in the oil options market. Implied volatility has soared in recent days as there has been a surge in buying call options, which can profit if prices rise.
José Torres of Interactive Brokers says recent developments show that investor sentiment and high stock valuations are susceptible to geopolitical conflicts, sustained inflation and oil prices.
“Investors are dialing back their expectations for the Fed to begin its easing cycle. Geopolitics could replace the Fed as one of the biggest drivers of market volatility,” he said.
As Wall Street's earnings season begins, results from major banks are the latest indicator of how the U.S. economy is faring as persistent inflation clouds the trajectory of interest rates.
JPMorgan Chase & Co. and Wells Fargo both reported lower-than-expected net interest income (profits earned on loans) as funding costs rose. Citigroup's profits beat expectations as companies explore financing markets and consumers rely on credit cards.
“Many economic indicators remain positive. However, as we look to the future, we remain cautious of a number of significant elements of uncertainty,” said Jamie Dimon, chief executive of JPMorgan. CEO) said. He cited the effects of war, rising geopolitical tensions, sustained inflationary pressures and quantitative tightening.
Meanwhile, the latest economic data did little to change Friday's decline in risk appetite, and consumer sentiment declined as inflation expectations rose.
BlackRock CEO Larry Fink said he expects the Federal Reserve to cut interest rates up to two times this year, making it difficult for the central bank to rein in inflation.
Fink told CNBC that if inflation reaches 2.8% to 3%, above the Fed's 2% target, “this will be a victory.”
Pacific Investment Management Company warned that if U.S. inflation rises, the Federal Reserve could raise interest rates and asset managers would prefer to buy bonds in other markets.
“If inflation starts to flare up again, the Fed could potentially raise rates instead of cutting them,” Mohit Mittal, chief investment officer for core strategies at Pimco, said in an interview on Bloomberg TV.
Traders were also keeping an eye on the latest FedSpeak. On Friday, a number of officials stressed there was no urgency to cut interest rates, pointing to still-high inflation and a strong labor market.
This included comments from both Boston Fed's Susan Collins and San Francisco Fed's Mary Daley. Atlanta's Rafael Bostic reiterated his view that there will be one rate cut toward the end of the year, and Kansas City's Jeffrey Schmidt said he favors a “patient” approach to rate cuts.
Changing expectations around the timing and pace of the first rate cut are likely to cause more volatility in yields in the near term, but more importantly, the US central bank remains poised to begin easing later this year. UBS's chief investment office believes that this is true.
The CIO maintains a positive outlook on high-quality bonds, as it is unlikely that the Fed will need to raise rates further.
Solita Marcelli, head of UBS Global Wealth Management, said: “We continue to emphasize high-quality fixed income in our global portfolios and urge investors to secure attractive yields before interest rates fall this year. I recommend it.” “We prefer sustainable bonds, as well as bonds with a duration of 1 to 10 years.”
“We also believe investors should consider aggressive exposure to fixed income for greater diversification,” he concluded.
Company highlights:
-
U.S. Steel shareholders have voted in favor of Nippon Steel's $14.1 billion takeover bid, leaving the fate of the iconic American steelmaker's deal in the realm of U.S. regulators and politics.
-
BlackRock's long-term investment funds recorded net inflows of $76 billion in the first quarter, helping the world's largest asset manager push client assets to a record $10.5 trillion.
-
Exxon Mobil Corp. has officially approved a sixth oil development in Guyana, which will make the Latin American country a bigger oil producer than OPEC member Venezuela.
-
The Chinese government has ordered carriers such as China Mobile to replace foreign chips in their core networks by 2027, The Wall Street Journal reported, citing people familiar with the matter.
-
Activist investor Barrington Capital Group LP has called on Paramount Global to end exclusive negotiations with media mogul David Ellison and consider rival offers, including one from Apollo Global Management. ing.
The main movements in the market are:
stock
-
As of 4 p.m. New York time, the S&P 500 was down 1.5%.
-
Nasdaq 100 fell 1.7%
-
The Dow Jones Industrial Average fell 1.2%.
-
MSCI World Index falls 1.2%
currency
-
Bloomberg Dollar Spot Index rose 0.7%
-
The euro fell 0.8% to $1.0637.
-
The British pound fell 0.8% to $1.2447.
-
The Japanese yen remained almost unchanged at 153.26 yen to the dollar.
cryptocurrency
-
Bitcoin fell 5.2% to $66,823.88.
-
Ether fell 8.8% to $3,214.92.
bond
-
The 10-year Treasury yield fell 7 basis points to 4.52%.
-
Germany's 10-year bond yield fell 10 basis points to 2.36%.
-
UK 10-year bond yields fell 6 basis points to 4.14%.
merchandise
-
West Texas Intermediate crude rose 0.6% to $85.54 a barrel.
-
Spot gold fell 1.3% to $2,342.74 an ounce.
This article was produced in partnership with Bloomberg Automation.
–With assistance from Alex Longley, Jack Wittels, Julia Fanzeres, Jack Ryan, Sybilla Gross, Caleb Mutua, Carter Johnson, Michael Mackenzie, and Isabelle Lee.
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP