Markets Today: Stocks Fall as Middle East Tensions Ratchet Higher

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.38%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.45%, both at 2-week lows.

Stock index futures this morning are moderately lower on concern the conflict between Israel and Hamas may widen to a regional conflict.  The U.S. Pentagon said it is seeing an increase in drone attacks in Iraq and Syria against American interests, and a U.S. destroyer on Thursday shot down cruise missiles launched by Yemen-based Houthi militants toward Israel.  Crude prices jumped to a 2-1/2 week high today on the heightened geopolitical risks, and gold rallied to a 2-3/4 month high as investors flock to safe-haven assets. 

In the Middle East, the leaders of Saudi Arabia and the United Emirates are meeting today in Riyadh in an attempt to contain the spread of the Israeli-Hamas conflict throughout the Middle East.  Qatar’s Emir has also arrived in Riyadh ahead of a broader economic summit between Gulf Arab states and southeast Asina countries.  Iran and its proxy forces in Lebanon, Iraq, and Yemen have warned they could retaliate against Israel if Israeli troops enter Gaza.  

The markets are discounting a 2% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 23% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields are mixed.  The 10-year T-note yield is down -0.8 bp at 4.982%.  The 10-year German bund yield is up +0.4 bp at 2.934%.  The 10-year UK gilt yield is up +3.6 bp at 4.708%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -1.12%.  China’s Shanghai Composite Index closed down -0.74%.  Japan’s Nikkei 225 today closed down -0.54%.

The Euro Stoxx 50 today tumbled to a 7-month low as concerns about an escalation of the Israeli-Hamas war sparked a risk-off mood in asset markets.  The deepening crisis in the Middle East pushed crude oil prices up to a 2-1/2 week high, and gold prices jumped to a 2-3/4 month high as investors flocked to the safety of gold.  Losses in travel and leisure stocks led the overall market lower.  On the positive side was strength in European automakers and parts suppliers after today’s news showed Eurozone Sep new car sales rose for the fourteenth consecutive month.  Also, producer price pressures eased in Germany after German Sep PPI fell by a record -14.7% y/y.

Bank of America reported that EPFR Global data showed Eurozone equities saw -$1.9 billion of outflows in the seven days through Wednesday, the 32nd week of redemptions.

Eurozone Sep new car registrations rose +9.2% y/y to 861,000, the fourteenth consecutive month registrations have increased.

German Sep PPI fell a record -14.7% y/y (data from 1977), a larger decline than expectations of -14.1% y/y.

China’s Shanghai Composite Stock Index today sank to an 11-1/2 month low and closed moderately lower.  The Shanghai Composite has erased all the gains seen in the reopening rally after China eased Covid restrictions.  Persistent weakness in China’s property market remains a drag on China’s economy as investor pessimism over an uneven economic recovery and a weaker-than-expected rebound in consumption has kept Chinese stocks in a downtrend.  Weakness in global equity sparked by geopolitical tensions in the Middle East has also undercut Chinese stocks, with foreign investors selling 24 billion yuan ($3.3 billion) of onshore stocks on a net basis this week.

Chinese stocks were also under pressure today after Morgan Stanley advised investors against buying the dip in Chinese equities, cautioning that market sentiment will likely stay fragile and foreign fund outflows could persist in the near term.

In an attempt to boost market liquidity, the Peoples Bank of China (PBOC) injected a record 733 billion yuan of cash into the financial system with reverse repurchase contracts.   

Japan’s Nikkei Stock Index today dropped to a 2-week low and posted moderate losses. The jump in the 10-year T-note yield to a 16-year high on Thursday weighed on Japanese stocks along with concerns about an escalation of the crisis in the Middle East.  Japanese luxury goods makers declined today after L’Oreal unexpectedly posted a decline in North Asia sales amid a challenging travel retail market.  Losses in the Nikkei Stock Index were limited after JPMorgan Chase said Japanese stocks could benefit from growth in middle-class consumer spending amid inflation in 2024.  Also, a decline in the yen to a 2-1/2 week low against the dollar today benefited exporter stocks.

BOJ Governor Ueda said, “The BOJ will keep monetary easing patiently to achieve its 2% inflation target in a stable and sustainable manner.”

Japan Sep national CPI eased to +3.0% y/y from +3.2% y/y in Aug, right on expectations. Sep national CPI ex-fresh food and energy eased to +4.2% y/y from +4.3% y/y in Aug, stronger than expectations of +4.1% y/y.

Pre-Market U.S. Stock Movers

Intuitive Surgical (ISRG) tumbled more than -7% in pre-market trading after reporting Q3 revenue of $1.74 billion, weaker than the consensus of $1.77 billion. 

Regions Financial (RF) dropped more than -5% in pre-market trading after reporting Q3 FTE net interest margin of 3.73%, below the consensus of 3.85%.

Interrepublic Group of Cos (IPG) fell more than -5% in pre-market trading after reporting Q3 adjusted EPS of 70 cents, below the consensus of 73 cents. 

Hewlett Packard Enterprise (HPE) tumbled more than -4% in pre-market trading after forecasting 2024 adjusted EPS of $1.82-$2.02, well below the consensus of $2.14. 

Schlumberger (SLB) slid more than -2% in pre-market trading after reporting Q3 revenue of $8.31 billion, below the consensus of $8.32 billion. 

Stocks exposed to cryptocurrencies rose as Bitcoin jumped more than +4% to a 2-1/4 month high.  As a result, Riot Platforms (RIOT) and Hut 8 Mining (HUT) are up more than +6%.  Also, Marathon Digital (MARA) and MicroStrategy (MSTR) are up more than +4%.  In addition, Coinbase Global (COIN) is up more than +3%.

Jazz Pharmaceuticals Plc (JAZZ) climbed more than +3% in pre-market trading after Bloomberg News reported the company is exploring strategic options, including a potential sale.

General Motors (GM) is up more than +1% in pre-market trading after a top union negotiator said the company and the UAW are moving toward an agreement to end the month-long strike. 

Block Inc (SQ) rose more than +1% in pre-market trading after UBS initiated coverage on the stock with a buy recommendation and a price target of $70. 

Union Pacific (UNP) climbed more than +2% in pre-market trading after Deutsche Bank upgraded the stock to buy from neutral with a price target of $235.

Western Alliance (WAL) rose more than +2% in pre-market trading after reporting Q3 EPS of $1,97, above the consensus of $1.91.

Knight-Swift Transportation Holdings (KNX) surged more than +15% in pre-market trading after reporting Q3 total revenue of $2.02 billion, well above the consensus of $1.90 billion, and raised its full-year net cash capex estimate to $700 million-$750 million from a previous estimate of $640 million-$690 million.

Corteva (CTVA) gained more than +1% in pre-market trading after Oppenheimer upgraded the stock to outperform from perform. 

Earnings Reports (10/20/2023)

American Express Co (AXP), Comerica Inc (CMA), Euronet Worldwide Inc (EEFT), Huntington Bancshares Inc/OH (HBAN), Interpublic Group of Cos Inc/T (IPG), Regions Financial Corp (RF), Schlumberger NV (SLB).

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.