Friday close: Geopolitics remain a headline risk
Classic risk-off session with Treasuries, oil and gold up, while stocks down amid a spike in VIX
Middle East tensions rose after Israel infantry made their first raids into the Gaza Strip on Friday since Hamas fighters rampaged through southern Israel. Meanwhile, the market was spooked after Iran's foreign minister, whose government supports Hamas and other Middle East militant groups, said on Thursday opening a "new front" against Israel would depend on Israel's actions in Gaza. Although Tehran has been a long-term backer of Hamas, Iranian officials have been adamant that the country had no involvement in the militants' attack against its arch enemy Israel on Saturday.
Your Guide to Understanding the Roots of the Israel-Hamas War Bloomberg
From a market perspective, any direct clash between Israel and Iran would be a sharp escalation with Bloomberg Economics estimating oil prices could soar to $150 and global growth drop to 1.7% — a recession that takes about $1 trillion off world output.
Oil prices rose with Brent crude back around $91/bbl after today’s $5 gain. It was its 2nd biggest move higher this year as markets digest Middle East turmoil.
Treasuries were in demand today as investors sought safe-haven assets – 10y and 30y yields fell by 8bps and 10bps, respectively.
VIX (volatility index) finished at 19.3 after trading sub-16 level in yesterday’s session.
Stock indices finished lower with NASDAQ (1.2%) being the primary laggard, while the S&P 500 ended with a 0.5% loss.
Apart from geopolitics, UMichigan report did not help sentiment with inflation estimates higher than expected (3.8% vs 3.2% forecasted) and consumer sentiment falling to the lowest level since May 2023.
Big banks kicked off the 3rd quarter earnings season with solid reports but warned about geopolitical tensions and a looming economic slowdown. WSJ
Ford Motor is considering cutting a work shift at the plant where it builds its electric F-150 Lightning pickup as demand for the EV truck falters, according to a memo from a United Auto Workers official. WSJ
Rising Global Conflict Reshuffles Supply Chains (FT)
Retailers’ Seasonal Hiring Plans Signal a Cooling Labor Market (NYT)