(Bloomberg) — Markets remained on edge on Friday after an escalation of the tensions in the Middle East sent stocks tumbling around the world and stoked demand for haven assets including bonds and the dollar.
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Gains for Treasuries drove the 10-year yield as much as 14 basis points lower after Israel launched a retaliatory strike on Iran less than a week after Tehran’s rocket and drone barrage, according to two US officials. They pared the drop as Iranian media appeared to downplay the incident. Bond yields in Europe also fell.
The Stoxx Europe 600 index fell 0.7%, set for a third straight week of losses. Futures on the S&P 500 and Nasdaq 100 were down 0.5% and 0.7% respectively.
An index of the dollar was flat after erasing an earlier gain. Oil also pared an initial, sharp jump. Brent crude traded a little more than 1% higher, after earlier soaring above $90 a barrel on concerns a wider conflict that could endanger supplies.
“The initial flight-to-safety reaction is starting to reverse as we learn more about the details of what happened overnight,” said Viraj Patel, global macro strategist at Vanda Research. “Even in the absence of an escalation, the combination of mixed earnings and geopolitical headwinds this week have been a catalyst for crowded equity longs to unwind.”
The latest moves cap a dismal week for markets after solid economic readings and hawkish Fedspeak reinforced speculation that US interest rates will remain higher for longer. With earnings season in full swing, traders are now looking for corporate results to support any rally.
“Caution will dominate the next few days and the bears will position themselves for further declines until next week’s economic data,” said Guillermo Hernandez Sampere, head of trading at asset manager MPPM.
Meanwhile, debate is still raging around the path for US interest rates.
New York Fed President John Williams said while it isn’t his baseline expectation, even a rate hike is possible if warranted. His Atlanta counterpart Raphael Bostic said he doesn’t think it will be appropriate to ease until toward the end of 2024. The Fed may hold rates steady all year, Minneapolis Fed chief Neel Kashkari told Fox News Channel.
Among individual movers, Taiwan Semiconductor Manufacturing Co. dropped after the company revised down the revenue growth outlook for the chip industry, citing a softer recovery across smartphone and personal computer sectors. Infosys Ltd. slumped in the US after forecasting tepid sales growth for the year.
Key events this week:
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BOE Deputy Governor Dave Ramsden and ECB Governing Council member Joachim Nagel speak, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.7% as of 8:52 a.m. London time
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S&P 500 futures fell 0.5%
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Nasdaq 100 futures fell 0.7%
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Futures on the Dow Jones Industrial Average fell 0.4%
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The MSCI Asia Pacific Index fell 1.7%
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The MSCI Emerging Markets Index fell 1.6%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.0657
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The Japanese yen rose 0.1% to 154.43 per dollar
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The offshore yuan was little changed at 7.2510 per dollar
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The British pound rose 0.1% to $1.2451
Cryptocurrencies
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Bitcoin rose 1.5% to $64,489.01
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Ether rose 0.2% to $3,077.12
Bonds
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The yield on 10-year Treasuries declined four basis points to 4.59%
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Germany’s 10-year yield declined two basis points to 2.47%
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Britain’s 10-year yield declined two basis points to 4.25%
Commodities
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Brent crude rose 1.2% to $88.15 a barrel
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Spot gold rose 0.4% to $2,388.23 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from John Cheng, Divya Patil, Macarena Muñoz and Isolde MacDonogh.
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