Rising Middle East Tensions and Port Strike Weigh On Wall Street, China Stocks Scale Higher

Alexander Garcia
02 Oct, 2024
Miami

Stock market indexes wavered in early trading on Wednesday amid rising tensions in the Middle East compounded by the uncertainty about the port workers strike. 

The S&P 500 index increased 0.1% and the Nasdaq Composite edged higher 0.4% in Wednesday's trading as fears rose about the prospect of a wider war in the Middle East. 

Iran said it completed its ballistic missile attack on Israel in retaliation for the killing of its political advisors to Hezbollah and a military commander in Iran. 

Israel's president Benjamin Netanyahu vowed to provide a "painful" response to Iran's missile attacks, which were shot down with the help of the U.S. military installations in Jordan and Saudi Arabia. 

Israel also launched its ground offensive in southern Lebanon, targeting military hardware and fighters controlled by the Iran-backed Hezbollah. 

Investors are on edge as tensions escalate between Iran and Israel, which could possibly pull the U.S. into yet another war, while the U.S.-led NATO is enmeshed in challenging Russia's invasion of Ukraine. 

In addition, supply chain worries also dominated market sentiment after International Longshoremen's Association members launched a historic strike at key 14 ports on the East and Gulf Coasts from Maine to Texas. 

The last time dock workers on the East Coast and along the Gulf Coast took to strike was in 1977. 

If the strike drags on longer than three weeks, retailers and businesses could face shortages, and customers could experience higher prices on items ranging from apparel, fruits, and vegetables, coffee, chemicals, wood products, and Christmas decoration.

Cruise ships and oil tankers are not going to be affected by the port strike, because the union's pledge not to hold up travelers and non-union workers handling the flow. 

The United States Maritime Alliance, or USMX, which represents shippers, port associations, and terminal operators, said the now-expired contract of six years covered about 25,000 workers. 

On the economic front, private payrolls rose 143,000 in September, higher than the revised increase of 103,000 in August, according to the monthly report by ADP. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.1% to 5,717.41, the Nasdaq Composite rose 0.4% to 17,974.91, and the Russell 2000 index increased 0.1% to 2,199.91. 

The yield on 2-year Treasury notes edged higher to 3.65%, 10-year Treasury notes inched up to 3.79%, and 30-year Treasury bonds inched higher to 4.14%.

WTI crude oil increased $0.25 to $70.07 a barrel, and natural gas prices edged up 4 cents to $2.94 a thermal unit.

Gold fell by $9.54 to $2,650.80 an ounce, and silver increased by $0.42 to $31.76.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 101.43.

 

U.S. Stock Movers

Nike Inc. declined 7.4% to $82.57, and the athletic footwear company reported better-than-expected revenue in its latest quarter. 

Revenue in the fiscal first quarter ending in August declined 10% to $11.6 billion from $12.9 billion, net income plunged 28% to $1.05 billion from $1.45 billion, and diluted earnings per share fell to 70 cents from 94 cents a year ago. 

The athletic footwear and apparel maker said inventories at the end of the quarter fell 5% to $8.3 billion, reflecting product mix shifts and lower input costs. 

In the fiscal first quarter, the company returned to shareholders about $1.8 billion, including $558 million of dividends and $1.2 billion of stock repurchases. 

The company also withdrew its annual outlook and postponed its investor day as the new chief executive prepares to take charge. 

China-linked stocks advanced for the sixth session in a row following the stimulus rally turned into a frenzy in Hong Kong. 

The Hang Seng index soared 6% and extended its six-day rally to a whopping 25%, ahead of the widely anticipated fiscal measures following monetary stimulus and the relaxing of curbs on residential property transactions. 

Property stocks in Hong Kong trading soared between 10% and 60%, and tech stocks jumped between 6% and 20%. 

In New York trading, Alibaba Group advanced 2.6% to $115.63, JD.com gained 8.6% to $46.65, Baidu increased 5.8% to $116.45, and PDD Holdings jumped 5.3% to $153.06. 

Tesla declined 4.4% to $246.85 after the electric vehicle maker reported slightly less-than-expected deliveries in the third quarter. 

The electric vehicle maker delivered 462,890 vehicles, higher than 435,059 in the quarter a year ago and 443,956 in the previous quarter. 

Tesla is facing growing competition from Chinese automakers, and electric vehicle industry sales in China surged more than 43% from a year ago to 1.03 million in September. 

Li Auto, BYD, and NIO reported record monthly sales in China in September. 

Eli Lilly increased 0.8% to $885.78, and the pharmaceutical company is planning to invest as much as $4.5 billion in research and manufacturing facilities in Indiana. 

The new facility will hire about 400 staff, when fully operational, of scientists, researchers, engineers, and clinical personnel. 

The company's latest investment plan is in addition to its previously announced $5.3 billion plan in May to manufacture active ingredients for its diabetes and weight loss drugs. 

 

European Indexes Wavered as Crude Oil Jumped 3%, Eurozone Jobless Rate Held Steady at Record Low 

European markets struggled to stay above the flatline amid growing fears of a wider war in the Middle East, which potentially could disrupt crude oil supplies and international goods trade. 

Crude oil surged more than 3% in New York and London trading after Iran launched ballistic missiles targeting Israel while the Israeli military entered southern Lebanon. 

Benchmark indexes in Paris, London, and Frankfurt traded in a tight range, and investors reviewed the latest update on the labor market in the Euro Area. 

 

Eurozone Jobless Rate Held Steady In August 

The jobless rate in the Euro Area held steady at 6.4% in August, according to a Eurostat report released on Wednesday. 

The unemployment rate stayed at record lows and stayed resilient despite an elevated interest rate and weakening manufacturing sector activities. 

The jobless count increased by 94,000 from the previous month to 10.925 million, and the unemployment rate among those younger than 25 years of age and seeking jobs eased to 14.1%. 

Geographically, Spain led with a jobless rate of 11.3%, followed by Greece with 9.5% and Sweden with 8.4%.

On the other hand, the jobless rate was the lowest in Poland with 2.9%, Malta with 3%, Slovenia with 3.3%, and Germany with 3.5%. 

 

Spain's August Jobless Count Dropped to the Lowest Since 2007 

The number of people registered as jobless increased by 3,146 to 2.575 million in September, the ministry of employment and social security reported Tuesday. 

Unemployment among those younger than 25 increased by 15,027 to 192,139 in the month. 

The overall number of unemployed and those younger than 25 were lowest in the month since 2007. 

 

Europe Indexes and Yields

The DAX index decreased by 0.3% to 19,149.33; the CAC-40 index rose by 0.1% to 7,577.59; and the FTSE 100 index rose by 0.2% to 8,290.86. 

The yield on 10-year German bonds edged higher to 2.08%, French bonds inched higher to 2.86%, the UK gilts edged up to 4.02%, and Italian bonds increased to 3.42%.

The euro edged lower to $1.10; the British pound inched higher to $1.32; and the U.S. dollar weakened to 84.80 Swiss cents.

Brent crude decreased $2.20 to $75.76 a barrel, and the Dutch TTF natural gas fell by €0.11 to €39.13 per MWh. 

 

Europe Stock Movers

Energy stocks advanced in London following the rise in crude oil prices for the second week in a row amid rising tensions in the Middle East. 

Separately, American Petroleum Institute data showed that the U.S. crude oil inventories declined by 1.5 million barrels last week, the second weekly decline in a row. 

BP plc increased 2.4% to 410.60 pence, Shell PLC jumped 2.3% to 2,536.50 pence, and TotalEnergies SE advanced 2.7% to €60.91. 

TotalEnergies announced an investment of $10.5 billion in the GranMorgu offshore oil exploration block in the Republic of Suriname. 

GEA Group AG increased 2.4% to €45.08, and the German technology and system provider for the food processing industry said it achieved its mid-term financial goals two years ahead of schedule. 

Wizz Air Holdings dropped 6% to 1,285.0 pence in London trading after discount airline operator said load factor in September dropped. 

JD Sports Fashion PLC dropped 5.3% to 141.70 pence despite the retailer reporting record sales in 26 weeks to August and reiterating its annual outlook. 

 

Japan Indexes Erase Gains of Previous Session, Diet Elects Ishiba as Next Prime Minister 

Stock market indexes in Tokyo erased most of the gains of the previous session, and investors turned cautious amid rising tensions in the Middle East. 

The Nikkei 225 stock average dropped nearly 2%, and the broader Topix index declined more than 1% amid worries of a wider war in the Middle East. 

Iran launched a ballistic missile attack targeting Israel, escalating war in the Middle East, and Israeli forces carried out a ground invasion in Lebanon to dismantle installations controlled by Hezbollah. 

Despite Israel's recent military advances against Hezbollah in Lebanon and Hamas in Gaza, security conditions are not likely to improve in the Middle East in the near future. 

Investors in Tokyo and Asia are worried about the possibilities of crude oil supply disruptions if the war draws Iran and its supporters to a wider war, prolonging instability in the region. 

The yen decreased 0.1% to 143.64 against the U.S. dollar as currency traders monitored developments in the Middle East. 

Japan's parliament elected Shigeru Ishiba, the president of the Liberal Democratic Party, as the 102nd prime minister, and investors looked for clues about the future course of the monetary and fiscal policies. 

Prime Minister Ishiba is expected to support a gradual increase in the interest rate and is likely to be more conservative in increasing government spending. 

The newly elected prime minister announced dissolution of the parliament on October 9 and called for a general election on October 27, as the ruling party sought to regain public trust following the political funds scandal.  

On Tuesday, the Bank of Japan's Tankan survey found optimism among large manufacturing companies, but the mid-sized and smaller companies in the construction and service sectors expect conditions to worsen in the months ahead. 

 

Japan Stock Movers 

The Nikkei 225 stock average declined 1.9% to 37,930.58, and the Topix index dropped 1.1% to 2,660.87. 

Tech stocks were among the leading decliners in Tokyo as investors turned cautions amid rising tensions in the Middle East. 

Tokyo Electron decreased 3.6% to ¥25,105.0, Advantest fell 4% to ¥6,616.0, and Lasertec Corporation dropped 4% to ¥22,970.0. 

Seven & I decreased 0.1% to ¥2,161.0, Isetan Mitsukoshi dropped 4.4% to ¥2,242.0, Fast Retailing declined 3.7% to ¥46,950.0, and Takashimaya fell 0.7% to ¥1,154.50.  

Marubeni Corp. gained 1.5% to ¥2,417.50, Itochu advanced 1% to ¥7,868.0, Mitsubishi Corp added 0.6% to ¥3,046.0, and Mitsui & Company gained 1.2% to ¥3,332.0. 

Shipping companies were in focus for the second day in a row after workers at 14 key ports in the U.S. went on a strike following the breakdown of wage negotiations. 

Nippon Yusen KK decreased 0.4% to ¥5,312.0, Kawasaki Kisen Kaisha  fell 0.6% to ¥2,216.0, and Mitsui O.S.K. Lines gained 1.2% to ¥5,046.0. 

Automobile companies were in focus ahead of monthly sales data, and the vehicle makers scrambled to stock additional inventories after the U.S. port workers strike disrupted supply chains. 

Toyota Motor decreased 0.9% to ¥2,573.50, Honda Motor increased 0.2% to ¥1,544.50, and Nissan Motor jumped 0.2% to ¥410.70. 

 

China Stock Frenzy Powers Hong Kong Rally for the Sixth Consecutive Session, EV Sales Soar In September 

The stimulus rally in China has turned into a frenzy as investors piled in after the People's Bank of China announced measures to support financial markets.

The Hang Seng index soared nearly 4%, extending the rally to the sixth session in a row and gains to over a whopping 23%. 

Financial markets in mainland China are closed for the Golden Week holidays, and trading is set to resume next Wednesday. 

Last week, the People's Bank of China announced a raft of measures to revive investor confidence, facilitate lending to corporations and consumers, and provide support to the residential property market. 

Moreover, Beijing's policymakers pivoted their attention to reviving economic growth and supporting the property market after sitting on the sidelines for four years. 

Local authorities in Shanghai, Guangzhou, and Shenzhen eased restrictions on buying homes by lowering down payment requirements and approving purchases by nonresidents. 

Luxury property sales soared in Shanghai over the weekend, following the easing of restrictions, powering the sale of more than 11 billion yuan in just two days. 

Retail investors jumped on the bandwagon in Monday's trading, lifting the trading volume to record highs in Shenzhen and Shanghai stock exchanges. 

About HK$506 billion, or $65 billion worth of stocks, changed hands on Monday in Hong Kong, breaking the previous record on Friday. 

Trading turnover on exchanges in Shanghai and Shenzhen soared to a record high of 2.6 trillion yuan, or $371 billion, as individual and institutional investors bid up stocks. 

The improving investor confidence is expected to draw more investments from global fund managers and foreign investors as foreign investors recalibrate their China exposure. 

Despite the current euphoric market sentiment, it will take time before consumers feel the positive effect of the monetary policy easing. 

Investors are now expecting the release of significant fiscal measures from policymakers over the next two weeks, but previous measures released earlier in the year have failed to revive consumer confidence and arrest the decline in the property market. 

 

China Stock Movers 

The Hang Seng index soared 3.6% to 22,380.41, and financial markets in China were closed for National Holidays. 

Mainland China-focused property developers soared in Hong Kong trading. 

China Resources Land jumped 10.5% to HK $31.55, China Vanke soared 41% to HK $10.52, Longfor Group Holding surged 30.1% to HK $19.62, and Sun Hung Kai Properties added 6.3% to HK $90.90. 

Tech stocks also participated in the market rally, as investors warmed up to high-growth stocks and riskier assets. 

Alibaba Group added 7.1% to HK $118.20, JD.com jumped 12.1% to HK $189.0, and Tencent Holdings gained 7.7% to HK $477.80. 

Electric vehicle makers advanced in Hong Kong trading following the strong September sales driven by heavy discounting, and new models attracted new buyers. 

Li Auto advanced 13.1% to HK $122.30 and BYD increased 7.2% to HK $305.0 after five leading electric vehicle makers reported record sales in September. 

BYD sold a record 419,426 electric vehicles in September, an increase of 12.4% from the previous month and a surge of 45.9% from a year ago. 

Li Auto shipped 53,709 electric vehicles last month, a rise of 11.6% from August and a jump of 48.9% from a year ago. 

NIO Inc. increased 5.9% to HK $59.50 after the electric vehicle maker reported September vehicle sales increased 5% from the previous month and 35.4% from a year ago to 21,181. 

Xpeng advanced 3.8% to HK $54.95 after the electric vehicle maker sold a record 21,352 units, an increase of 52.1% from August and a surge of 39.5% from a year ago.