A look at the day ahead in the US and global markets by Mike Dolan
It was hardly unexpected, but Israel’s missile strike on Iran on Friday confirms fears of a dangerous series of tit-for-tat retaliations between Middle Eastern powers that are also likely to create weeks of uncertainty for global markets.
As we head into another weekend, we wonder what could happen in the region until global stock markets reopen on Monday. This will continue to be a pattern until the impasse is resolved. Concerns about the targeting of both countries’ nuclear operations are prevalent among many.
Against that backdrop, the reaction from oil prices, global equities and traditional security trades has been relatively modest so far on Friday. That’s partly as a senior Iranian official told Reuters that Tehran has no plans to hit back immediately, while state media there initially reacted mutedly.
was initially up about 4% on the news to $86.3 per barrel, but remained well below the year’s high and has since erased almost all of that gain. To put it in context, annual oil price increases are still less than 5%.
The same was true for gold, whose initial rise did not reach new records. It also reversed gains since then.
The dollar, which in this geopolitical episode often received both a security bid and followed oil prices as a kind of oil currency, also made limited gains. The traditional security features of the ailing Japanese yen or Swiss franc were less visible.
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World stocks, pressured more broadly by worries about US yields and a patchy corporate earnings season, fell overall, but the major stock markets were down less than 1%.
If it were to end here, it would all seem to be well under control.
But with US stock futures back in the red on Friday and on track to post six straight days of losses for the first time since 2022, fear is clearly growing on Wall Street.
With the S&P500 down 5% from record highs in less than three weeks, the implied volatility “fear gauge” rose above 20 on Friday for the first time since October.
A bigger conundrum for investors is how to play US Treasuries now – caught between seeing Treasuries as a refuge in times of global conflict and the Federal Reserve’s increasingly aggressive stance.
Two-year Treasury yields are back at a test level of 5%, just over a quarter of a percentage point lower than where the Fed’s policy rate of 5.25-5.50% currently stands. They only fell back briefly on the attack on Iran earlier and are at 4.97% before today’s bell.
To the chagrin of some other major central bankers attending the International Monetary Fund meetings in Washington this week, Fed officials continue to signal they are in no rush to cut rates this year as they root out lingering remnants of the recent inflation spike.
“I feel absolutely no urgency to cut rates,” John Williams, the head of the New York Fed, said on Thursday.
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The continued strength of the U.S. labor market and business activity was again evident Thursday in weekly sub-forecasts for unemployment benefits and a Philadelphia Fed survey that beat expectations.
The European Central Bank, on the other hand, seems determined to start lowering its policy interest rate as early as June.
In the corporate world, Big Tech is replacing the banks at the top of the profit diaries, but there too, the response to the updates is disturbing.
Due to its own geopolitical concerns, Taiwan’s main stock market was the major underperformer overnight, falling almost 4%. Taipei-listed shares of TSMC fell nearly 7% on Friday after the company’s first-quarter earnings report, in which it lowered its expectations for chip sector growth and did not adjust its investment plans.
Shares of video giant Netflix (NASDAQ:) fell after the bell on Thursday after it unexpectedly announced that it will stop reporting subscriber numbers every quarter, seen as a sign that years of customer gains in the streaming wars are coming to an end.
Although Netflix reported a surprisingly large 9.3 million new customers for the first quarter, Netflix provided a revenue forecast that fell short of analysts’ targets.
Tesla (NASDAQ:), the electric car giant, continues to unnerve investors, with its stock down 2% ahead of Friday’s bell and following five straight declines that have seen them lose nearly 40% so far this year to a 15-month low .
There was better news for some of Europe’s leading firms: L’Oréal shares rose 5% after the beauty company posted a like-for-like sales increase of almost 10% in the first quarter.
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Key agenda items that could provide direction to the US markets later on Friday:
* US corporate profits: American Express (NYSE:), Procter & Gamble (NYSE:), Schlumberger (NYSE:), Fifth Third Bancorp (NASDAQ:), Huntington Bancshares (NASDAQ:), Regions Financial (NYSE:)
* International Monetary Fund Spring Meeting in Washington
*Chicago Federal Reserve President Austan Goolsbee speaks. Policymaker Joachim Nagel of the European Central Bank speaks. Deputy Governor Policymaker David Ramsden of the Bank of England and Policymaker Catherine Mann of the BoE speak. Bank of Canada Governor Tiff Macklem speaks
(By Mike Dolan, editing by Andrew Cawthorne)
