Stocks fall on Middle East tensions, Treasuries rise: Markets wrap

(Bloomberg) — Markets remained on edge Friday after escalating tensions in the Middle East sent stocks around the world lower and increased demand for safe-haven assets including bonds and the dollar.

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Gains in Treasuries sent the yield on the 10-year Treasury note down as much as 14 basis points after Israel launched a retaliatory strike on Iran less than a week after Tehran launched missiles and drones, according to US officials. They reduced this decline as Iranian media appeared to downplay the importance of the incident. Bond yields also fell in Europe.

The Stoxx Europe 600 index fell 0.7%, heading for a third straight week of losses. S&P 500 and Nasdaq 100 futures fell 0.5% and 0.7%, respectively.

The dollar index stabilized after erasing its previous gains. Oil also trimmed its initial sharp jump. Brent crude was trading slightly higher than 1%, after earlier rising above $90 a barrel amid fears of a broader conflict that could jeopardize supplies.

“The initial reaction to run to safety began to subside as we learned more about the details of what happened overnight,” said Viraj Patel, global strategist at Vanda Research. “Even in the absence of an escalation, the combination of mixed earnings and geopolitical headwinds this week was a catalyst for a pullback in crowded equity long positions.”

The latest moves cap a bleak week for markets after strong economic readings and tough Fed language fueled speculation that US interest rates will remain high for longer. With earnings season in full swing, traders are now looking for corporate results to support any rally.

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“Caution will dominate the next few days and the bears will position themselves for further declines until the release of economic data next week,” said Guillermo Hernandez Samperi, head of trading at asset management firm MPPM.

Meanwhile, debate continues to rage over what path US interest rates will take.

New York Fed President John Williams said that while this is not his base forecast, a rate hike is possible if warranted. His counterpart in Atlanta, Rafael Bostic, said he did not think it would be appropriate to ease until the end of 2024. Minneapolis Fed President Neal Kashkari told Fox News that the Fed may keep interest rates steady throughout the year.

Among individual companies, Taiwan Semiconductor Manufacturing Co fell after the company revised its chipmaking revenue growth forecast, citing a softer recovery across the smartphone and PC sectors. Infosys Ltd. declined. In the United States after expecting tepid sales growth for this year.

Main events this week:

  • Bank of England Deputy Governor Dave Ramsden and European Central Bank Governing Council member Joachim Nagel speak on Friday

  • Chicago Fed President Austin Goolsbee speaks Friday

Some key movements in the markets:

Stores

  • The Stoxx Europe 600 Index was down 0.7% as of 8:52 a.m. London time

  • S&P 500 futures fell 0.5%

  • Nasdaq 100 futures fell 0.7%

  • Dow Jones Industrial Average futures fell 0.4%

  • MSCI Asia Pacific Stock Index fell 1.7%

  • MSCI Emerging Markets Index declines 1.6%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.1 percent to $1.0657

  • The Japanese yen rose 0.1 percent to 154.43 yen to the dollar

  • There was little change in the yuan in external transactions at 7.2510 to the dollar

  • The British pound rose 0.1 percent to $1.2451

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Digital currencies

  • Bitcoin rose 1.5% to $64,489.01

  • Ethereum rose 0.2% to $3,077.12

Bonds

  • The yield on the 10-year Treasury note fell four basis points to 4.59%.

  • The yield on 10-year German bonds fell two basis points to 2.47%.

  • The yield on British 10-year bonds fell two basis points to 4.25%.

Goods

  • Brent crude rose 1.2 percent to $88.15 a barrel

  • Spot gold rose 0.4 percent to $2,388.23 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from John Cheng, Divya Patel, Macarena Muñoz, and Isolde McDonogh.

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