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Stock futures fall on Middle East concerns, ports gain: markets align

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(Bloomberg) — European and U.S. stock index futures fell as global markets were roiled by a new conflict in the Middle East, sending stock prices lower while oil and port assets including government bonds and the dollar rose higher.

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The gains for government bonds caused ten-year yields to drop as much as 14 basis points. An index of the dollar rose as much as 0.6%, while other havens including the Swiss franc, yen and gold also advanced.

The moves, according to two US officials, came as Israel launched a retaliatory strike on Iran, less than a week after the barrage of missiles and drones in Tehran, raising fears of a widening conflict in the Middle East. However, markets have scaled back some of the risky measures after Iran played down the incident.

Oil prices rose more than 4%, with Brent crude rising above $90 a barrel before retreating below that level. A gauge of Asia ex-Japan credit default swaps was also on track for the biggest daily rise in more than eight months. Asian shares also fell on Friday, while Japanese, South Korean, Australian and Hong Kong shares fell.

“The escalation of geopolitical risks was unexpected,” said Charu Chanana, strategist at Saxo Capital Markets. “Semiconductor revenues face a monumental task to counter this increasing risk environment, with geopolitical escalations also clouding the outlook.”

Taiwan Semiconductor Manufacturing Co. fell after the company cut its sales growth outlook for the chip industry, citing a softer recovery in the smartphone and PC sectors. Infosys Ltd. slumped in the US after predicting tepid sales growth for the year.

Japan’s inflation figures released on Friday were below economists’ expectations. A growing number of economists expect the BOJ to raise rates again in October after holding them steady next week, with most of them flagging an earlier move in July as a risk scenario, a Bloomberg survey shows.

Elsewhere, U.S. stock benchmarks fell for a fifth session on Thursday amid the Federal Reserve’s repricing of interest rate cuts.

New York Fed President John Williams said that while this is not his baseline expectation, even a rate hike is possible if warranted. His colleague Raphael Bostic of Atlanta said he does not think it is appropriate to ease interest rates until the end of 2024. The Fed could keep rates steady throughout the year, Neel Kashkari, head of the Minneapolis Fed, told Fox News Channel.

Reaccelerating inflation is a major concern for markets, said Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management.

“We are firmly in the camp of no rate cuts in 2024,” he said. “We believe that investors should prepare for a ‘higher-for-longer’ regime when it comes to both inflation and interest rates, and that investment portfolios should be positioned for these dynamics for the foreseeable future.”

Most Asian emerging market currencies fell, with the Mexican peso falling more than 6% against the dollar before recovering much of the loss. The Indian rupee fell to a new low.

Elsewhere, Bitcoin sank as part of a broader retreat in cryptocurrencies.

Main events this week:

  • BOE Deputy Governor Dave Ramsden and ECB Governing Council Member Joachim Nagel speak on Friday

  • Chicago Fed President Austan Goolsbee will speak on Friday

Some of the major moves in the markets:

Shares

  • S&P 500 futures fell 0.8% as of 6:28 a.m. London time

  • Nikkei 225 futures (OSE) fell 2.5%

  • Japan’s Topix fell 1.7%

  • Australia’s S&P/ASX 200 fell 1.1%

  • Hong Kong’s Hang Seng fell 1.1%

  • The Shanghai Composite fell 0.2%

  • Euro Stoxx 50 futures fell 1.4%

  • Nasdaq 100 futures fell 1%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro was little changed at $1.0634

  • The Japanese yen rose 0.2% to 154.38 per dollar

  • The offshore yuan was little changed at 7.2491 per dollar

  • The Australian dollar fell 0.3% to $0.6400

  • The British pound fell 0.1% to $1.2419

Cryptocurrencies

  • Bitcoin fell 2.3% to $62,055.51

  • Ether fell 2.3% to $2,997.85

Bonds

  • The yield on ten-year government bonds fell by seven basis points to 4.56%

  • The Japanese ten-year yield fell by three basis points to 0.835%

  • The Australian ten-year yield fell by three basis points to 4.25%

Raw materials

  • West Texas Intermediate crude rose 2.4% to $84.70 a barrel

  • Spot gold rose 0.2% to $2,383.18 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from John Cheng.

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