Stocks Fall on Mideast Tensions, Treasuries Rise: Markets Wrap

(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 spiraling of tensions. Bond yields in Europe also fell. An index of the dollar rose as much as 0.6% before erasing most of the gain.

The Stoxx Europe 600 index fell 0.6%, set for a third straight week of losses. Futures on the S&P 500 and Nasdaq 100 were down 0.5% and 0.6% respectively. An index of Asia-Pacific stocks slumped 1.8%.

Oil 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 crude supplies.

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.

“The escalation in geopolitical risks was unexpected,” said Charu Chanana, a strategist at Saxo Capital Markets. “Semiconductor earnings have a huge task ahead to counter this increasing risk-off environment, with geopolitical escalations also muddying the outlook.”

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.

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.

Re-accelerating inflation is a big worry for the markets, according to 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 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 emerging market Asian currencies fell, with the Mexican peso dropping more than 6% versus the dollar before recovering much of the loss. The Indian rupee fell to another record low.

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

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