(Bloomberg) — Rising tensions in the Middle East kept stock markets on edge, though haven assets including bonds and the dollar gave up some early gains after Iranian media appeared to downplay the impact of Israeli strikes.
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Oil erased a previous sharp jump above $90 a barrel. The dollar traded only slightly higher. Treasury yields halved in an early move that sent the 10-year bond yield down 14 basis points after Israel launched a retaliatory attack on Iran less than a week after Tehran launched missiles and drones, according to US officials.
US stock futures also began to trim their losses, with contracts on the Standard & Poor's 500 Index falling by 0.4%, and contracts on the Nasdaq 100 Index trading by 0.7%.
The latest moves cap a bleak week for markets after strong economic readings and hawkish Federal Reserve comments forced investors to review the timing of a highly anticipated pivot to easier policy and the size of potential interest rate cuts.
“With inflation persisting, central banks have no option to consider spikes in oil prices, should they occur,” said Rajeev de Mello, global macro portfolio manager at GAMA Asset Management. “They will have to go back to higher interest rates for a longer period of time which at this point will be a shock to all markets.”
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.
An Iranian military official indicated that Tehran does not feel obligated to respond to the explosions, which American officials say were caused by Israeli strikes, as the semi-official Mehr Agency quoted the Commander-in-Chief of the Army, Abdul Rahim Mousavi, as saying that Tehran has already responded to Israeli threats.
Despite Friday's moves to allay fears of a broader war in the Middle East, the events are worrying and will deter investors from making bold bets, according to Michael Brown, a strategist at Pepperstone Group Ltd. in London.
“No one will want a shortage of crude oil and havens before the weekend,” he said. “From a risk management perspective, you can't definitively say that geopolitical risks are over and done with. So we may see another bout of risk reduction. Ultimately, it's about people's reluctance to have too much exposure.”
Among the individual movers, shares of Netflix Inc. fell. In pre-market trading after the live video streaming company reported results that included a pessimistic outlook for second-quarter revenue. Infosys Ltd. declined. In the United States after expecting tepid sales growth for this year.
Main events this week:
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Bank of England Deputy Governor Dave Ramsden and European Central Bank Governing Council member Joachim Nagel speak on Friday
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Chicago Fed President Austin Goolsbee speaks Friday
Some key movements in the markets:
Stores
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S&P 500 futures were down 0.4% as of 6:20 a.m. New York time.
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Nasdaq 100 futures fell 0.7%
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Dow Jones Industrial Average futures fell 0.4%
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The Stoxx Europe 600 index fell by 0.4%.
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MSCI World Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%.
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There was little change in the euro at $1.0649
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There was little change in the pound sterling at $1.2439
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There was little change in the Japanese yen at 154.52 to the dollar
Digital currencies
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Bitcoin rose 2 percent to $64,786.01
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Ethereum rose 0.9% to $3,096.82
Bonds
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The yield on the 10-year Treasury note fell seven basis points to 4.57%.
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The yield on 10-year German bonds fell by five basis points to 2.45%.
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The yield on British 10-year bonds fell four basis points to 4.23%.
Goods
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West Texas Intermediate crude fell 0.5% to $82.30 a barrel
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Spot gold rose 0.2 percent to $2,382.85 per ounce
This story was produced with assistance from Bloomberg Automation.
–With assistance from Sujata Rao and Farah Al-Bahrawi.
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