World Markets Drop Amid Worries of Higher Crude Oil Prices Fueling Inflation

Barry Adams
16 Apr, 2024
New York City

Stocks lacked direction as investors weighed positive earnings from banks with rising Treasury yields and escalating tensions in the Middle East. 

The S&P 500 index and the Nasdaq Composite were little changed after Bank of America, Morgan Stanley, and UnitedHealth Group reported better-than-expected quarterly results. 

Crude oil futures hovered near their five-month high amid rising tensions in the Middle East as Israel mulls over new actions after Iran's missiles and drones attacked Israel. 

Moreover, shipping companies are still avoiding Red Sea lanes because of worries about Houthi rebel attacks, elongating shipping delivery times, and lifting shipping freight rates. 

Investors generally stayed on the sidelines and debated future rate paths after strong economic data over the last two weeks suggested a resilient U.S. labor market and economic conditions. 

The ongoing interest rate debate among investors is now focused on possible rate hikes instead of rate cuts if inflation stays above 3% due to the rebound in energy prices. 

Moreover, service sector wages are still rising at an annual pace of 4%, not commensurate with the Federal Reserve's goal of bringing down overall inflation to 2%. 

 

Housing Permits and Construction Fall

Rising mortgage rates and elevated home prices negatively impacted housing market activities in March. 

Housing permits, starts, and completions fell in the month as buyers struggled with affordability issues. 

Housing starts declined 14.7% to a seasonally adjusted annual rate of 1.32 million, permits declined 4.3% to an annual rate of 1.46 million, and completions decreased 13.5% to an annual pace of 1.47 million from the previous month, respectively. 

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the residential construction update. 

A year ago, building permits increased by 1.5%, housing starts declined by 4.3%, and completions fell by 3.9%. 

 

U.S. Indexes and Yields

The S&P 500 index increased 0.005% to 5,062.58, and the Nasdaq Composite rose 0.03% to 15,890.97. 

The yield on 2-year Treasury notes edged higher to 4.98%, 10-year Treasury notes inched up to 4.68%, and 30-year Treasury bonds edged up to 4.80%.

Crude oil prices hovered near five-month highs as tensions in the Middle East escalated and Israel prepared for the next round of actions targeting Iran-controlled assets and territory. 

WTI crude oil decreased $0.12 to $85.28 a barrel, and natural gas prices decreased 2 cents to $1.66 a thermal unit.

Gold increased by $23.80 to $2,389.74 an ounce, and silver rose 25 cents to $28.27. 

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged lower to 106.22.

 

U.S. Stock Movers

UnitedHealth Group rose 6.6% to $475.39 after the health insurance company reported first quarter revenue that surpassed market expectations. 

Revenue in the first quarter increased to $99.8 billion, and diluted earnings per share rose to $6.91. 

Johnson & Johnson declined 2.4% to $144.05 after the company reported better-than-expected first quarter earnings of $.271 per share on revenues of $21.38 billion. 

Bank of America declined 3.3% to $34.74 after the company reported better-than-expected quarterly results driven by an increase in net interest income and investment banking activities. 

Revenue increased to $25.46 billion, driven by net interest income of $14.19 billion. 

Morgan Stanley increased 3.3% to $89.86 after the financial services company reported first quarter revenue of $15.1 billion and diluted earnings per share of $2.02; both measures were ahead of market expectations. 

 

European Indexes Drop 1% Amid Rising Tensions In the Middle East 

Stock market indexes in Europe declined more than 1% on the worry of escalating tensions between Israel and Iran. 

Benchmark indexes in Frankfurt, Paris, and London dropped more than 1% as Israel's kept its options open to conduct a retaliatory strike after Iran's first-ever direct attack on Israeli territory. 

Closer to home, on the economic front. Germany's wholesale inflation decreased 3.0% from a year ago in March, matching the rate in February, Destatis reported Tuesday.

The U.K.'s jobless rate increased to 4.2% in three months to February from 3.9% in the three months to January, the Office for National Statistics said in a report on Tuesday. 

   

Eurozone Trade Surplus Expanded After Energy Imports Contracted 

The eurozone goods trade surplus widened in February to €23.6 billion from €3.6 billion a year ago, Eurostat reported Tuesday. 

Exports increased by 0.3% to €235.0 billion due to higher shipments of raw materials, food, beverages, and miscellaneous manufactured products. 

Imports in the region declined by 8.4% to €211.4 billion, driven by a widespread decline in demand for raw materials, crude materials, manufactured items, machinery, and transport equipment. 

The goods trade surplus soared after energy imports declined sharply and the shipment of machinery and vehicles nearly doubled from a year ago. 

In February, the European Union's trade surplus with the U.S. increased to €15.0 billion from €13.0 billion and with the UK expanded to 14.9 billion from 11.6 billion a year ago, respectively. 

Trade deficits with China shrank to €20.5 billion from €22.5 billion and with Norway contracted to €4.2 billion from €5.0 billion a year ago, respectively. 

 

Europe Indexes and Yields

The DAX index decreased by 1.5% to 17,766.23, the CAC-40 index fell by 1.4% to 7,932.61, and the FTSE 100 index inched lower by 1.8% to 7,820.32.

The yield on 10-year German bonds edged up to 2.406; French bonds inched higher to 2.99%; the UK gilts edged higher to 4.28%; and Italian bonds inched lower to 3.88%.

The euro edged higher to $1.062; the British pound inched higher to $1.244; and the U.S. dollar edged higher to 91.30 Swiss cents.

Brent crude decreased $0.07 to $90.01. a barrel, and the Dutch TTF natural gas rose by €2.12 to €33.62 per MWh.

 

Europe Stock Movers

LM Ericsson rose 6.5% to SEK 57.22 after the telecom equipment company reported first-quarter operating profit increased 7% from a year ago to SEK 4.6 billion, excluding restructuring charges. 

Beiersdorf AG increased 1.6% to €134.50 after the German skincare company lifted its 2024 sales estimate. 

Superdry PLC plunged 33% to 5.33 pence after the struggling retailer said it plans to delist the company from the London Stock Exchange as a part of the company restructuring. 

Wise PLC declined 7.7% to 842.50 pence after the company's revenue in the fiscal fourth quarter fell short of market expectations. 

Dr. Martens plunged 33% to 63.69 pence after the shoemaker announced difficult market conditions in fiscal 2025 and the company said its chief executive Kenny Wilson has resigned. 

Vallourec SA decreased 1.6% to €17.68 after the steel tubular products maker launched a debt offering to raise $820 million in senior debt maturing in 2032. 

 

China Economic Data Point to Headwinds Ahead 

Markets in Asia generally traded lower, and the benchmark indexes in Tokyo and Seoul declined 2.1% and 2.4%, respectively, tracking losses on Wall Street. 

Benchmark indexes in Shanghai and Hong Kong fell over 1.7% after China's gross domestic product figure in the first quarter surpassed expectations, but retail sales and industrial production data fell short of market expectations. 

Gross domestic product in the first quarter rose 5.3%, following the 5.2% increase in the fourth quarter of last year. 

The steady rebound in the service sector and rising exports boosted economic growth in the first quarter. 

China's economy expanded 1.6% in the first quarter from the previous quarter, when it grew 1.2%. 

Despite the rebound in the service sector, economists are worried that China's economic growth is likely to lag behind the government's target rate of 5% increase in 2024. 

Retail sales, industrial production, and property prices showed an uneven and fragile economic recovery in the first quarter. 

Retail sales rose less-than-expected 3.1%, and industrial production advanced 4.5% in March from a year ago, respectively.

On a monthly basis, retail sales rose 0.26% from the previous month, and industrial production dropped by 0.08% from February, when activities were disrupted because of the Lunar New Year. 

Fixed asset investment increased 4.5%, and property investment declined 9.5% amid an ongoing slump in the residential property market. 

The unemployment rate in urban areas increased to 5.2% in the first quarter, compared to an increase of 5.3% in the first two months of the year. 

China's economic data are generally viewed with a lot of skepticism by international investors, as state-controlled businesses and local provincial governments lack transparency and verifiable processes in economic data collection. 

The CSI 300 index declined 1.0% to 3,512.89, and the Hang Seng index dropped 1.9% to 16,279.56. 

Real estate developers fell after home prices fell 0.34% in March from the previous month and extended losses to the tenth month in a row. 

Longfor Group dropped 3.1% to HK$9.10, China Resources Land decreased 3% to $22.60, and China Vanke decreased 2.4% to $3.73. 

So far in the year, the Hang Seng index is down 3.3% and the CSI 300 index has advanced 3.2%, indicating diverging market sentiment in two markets.