World Stock Markets Turn Lower as Prolonged Middle Eastern Conflict Escalates Into Regional War

Alexander Garcia
03 Oct, 2024
Miami

Stocks struggled to advance on Wall Street amid rising tensions in the Middle East, and investors awaited the release of nonfarm payrolls data on Friday. 

The S&P 500 index decreased 0.4%, the 4asdaq Composite declined 0.3%, and the crude oil price extended its weekly gain to 5% amid escalating tensions in the Middle East. 

Tensions in the Middle East rose after Israel escalated its attack on Beirut and continued its ground offensive in Gaza. 

Market sentiment soured on the growing worries that Israel is likely to target the oil infrastructure of Iran, further lifting oil prices and stoking inflation. 

Losses on Wall Street were muted after the service sector index showed its strongest performance in September, according to the latest update by the Institute of Supply Management. 

The ISM Service Index showed that 54.9% of businesses reported expansion, up from 51.9% in August and the best reading since February 2023. 

The service sector activities expanded for the 49th month in 52 months, highlighting the strength in new orders and business activity expansion. 

Initial jobless claims increased by 6,000 to 225,000 in the last week, and continuing claims were little changed at 1.826 million, the U.S. Department of Labor reported Thursday. 

The initial claims rose to a record high, confirming the labor market softening trend and supporting the case for a possible rate cut at each of the remaining policy meetings in the year. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.4% to 5,709.83, the Nasdaq Composite fell 0.4% to 17,855.19, and the Russell 2000 index fell 0.7% to 2,179.05. 

The yield on 2-year Treasury notes edged higher to 3.70%, 10-year Treasury notes inched up to 3.80%, and 30-year Treasury bonds inched higher to 4.17%.

WTI crude oil increased $3.73 to $73.82 a barrel, and natural gas prices edged up 8 cents to $2.92 a thermal unit.

Gold fell by $1.52 to $2,658.70 an ounce, and silver increased by $0.25 to $32.10.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 101.96.

 

U.S. Stock Movers

Levi Strauss dropped 7.2% to $19.49, and the denim maker reported mixed results in the third quarter. 

Bank of America declined 0.9% to $38.91 after Warren Buffett Controlled Berkshire Hathaway continued to lighten its holding in the bank. 

Berkshire sold 8.5 million shares over the last three days for $338 million, according to the latest SEC filing. 

Berkshire, the diversified conglomerate, started selling its holding in the bank since mid-July and now lowered its stake to 10.2%. 

Hims & Hers Health dropped 14% to $16.30, and investors fear a sharp fall in demand for its pharmaceutical preparation as an alternative to Eli Lilly's GLP-1 treatment. 

The Food and Drug Administration said that the GLP-1 treatment shortage has been resolved, which is likely to reduce the addressable market for Hims & Hers compounds. 

Hims & Hers sells injections of semaglutide, a key ingredient used in Wegovy, the rival drug made by Novo Nordisk, which remains on the FDA's shortage list. 

Nvidia Corp. jumped 3.1% to $122.59, and the company's chief executive confirmed that Blackwell, its next generation artificial intelligence processor, "is in full production." 

“Blackwell is in full production, Blackwell is as planned, and the demand for Blackwell is insane,” CEO Jensen Huang said in an interview with CNBC on Wednesday. 

Crude oil explorers traded higher after crude oil prices extended their weekly rise to above 5% after tensions escalated in the Middle East. 

Exxon Mobil jumped 1% to $122.96, Chevron rose 0.7% to $122.96, and Occidental Petroleum added 1.6% to $54.30. 

 

European Markets Turn Lower Amid Rising Middle East Tensions

Stock market indexes in Europe turned lower as tensions in the Middle East rose and the stimulus rally in China faded. 

Benchmark indexes in Paris, Frankfurt, Milan, and London headed lower as investors reviewed the latest economic updates in the region. 

Investors turned cautious after Israel stepped up its military offensive in Beirut and vowed to mount a solid retaliatory response to recent missile attacks from Iran.

The escalating tensions between Iran and Israel raised the prospect of crude oil supply disruptions in the Middle East. 

 

Eurozone Producer Price Inflation Eases in August 

Eurozone producer price inflation continued to ease in August, driven by weaker energy prices. 

Producer price inflation in the currency union slowed to 0.6% in August, following a downwardly revised 0.7% increase in July, according to a report released by Eurostat. 

On an annual basis, producer price inflation fell 2.3% from a downwardly revised 2.2% decline in the previous month. 

Excluding energy, producer price inflation held steady at 0.3% in August.

Among the four largest economies in the currency union, producer prices on a monthly basis rose 0.2% in Germany and France, 1.2% in Italy, and 1.5% in Spain. 

 

Swiss Inflation Drops to a 3-Year Low  

Consumer price inflation in Switzerland decelerated to 0.8% in September from 1.1% in August, the Swiss Federal Statistical Office reported Thursday. 

The inflation fell to the lowest level since September 2021, and dropped below 1% for the first time in three years. 

 

Eurozone Private Sector Activities Contracted in September

The private sector activities contracted in the Euro Area for the first time in 2024, according to data compiled by S&P Global. 

The final HCOB Eurozone Composite PMI Output Index fell to 49.6 in September from a three-month high of 51.0 in the previous month. The output index was estimated at 48.9 in the preliminary estimate. 

Private sector activities contracted month-to-month simultaneously in Germany, France, and Italy for the first time in 2024 so far. 

The German private sector output contracted for the third month in a row and fell at the fastest pace since February, and contraction resumed in France after the Olympic Games boost in August. 

Italy's private sector activities index decreased for the first time in September, but the decline was marginal, and the index of activities eased to 49.7 from 50.7 in August. 

Spain's private sector growth accelerated to a four-month high in September, driven by an increase in manufacturing and service sector activities. 

The composite output index increased to 56.3 in September, up from 53.5 in August. 

 

Europe Indexes and Yields

The DAX index decreased by 0.8% to 19,015.41; the CAC-40 index fell by 1.3% to 7,477.78; and the FTSE 100 index rose by 0.1% to 8,282.52. 

The yield on 10-year German bonds edged higher to 2.14%, French bonds inched higher to 2.92%, the UK gilts edged up to 4.03%, and Italian bonds increased to 3.50%.

The euro edged lower to $1.10; the British pound inched lower to $1.31; and the U.S. dollar weakened to 85.05 Swiss cents.

Brent crude increased $3.82 to $77.72 a barrel, and the Dutch TTF natural gas fell by €0.88 to €38.77 per MWh. 

 

Europe Stock Movers

Deutsche Lufthansa increased 0.2%, and the German state-controlled carrier said it is resuming flights to certain destinations in the Middle East. 

The international flight operator also said the carrier plans to avoid airspace used by Iran and Iraq due to ongoing conflicts in the region. 

Alstom SA increased 2.4% to €18.79 after the French mobility company received orders from supply chain procurement company Proxima for 12 high-speed trains. 

SAP SE decreased 1.3% to €201.45, and the Germany company is under investigation by the U.S. Department of Justice for the alleged price-fixing practices. 

Vonovia SE declined 1.5% to €33.11, and the German residential landlord confirmed total cash inflow of about €4 billion in 2024, matching the level in the previous year. 

LANXESS AG declined 1.8% to €28.76, and the German chemical company agreed to sell its Urethane Systems business to Japan-based UBE Corporation. 

Tesco PLC increased 2.3% to 363.10 pence after the British grocery company reported an increase in revenue and profit in the first half and lifted its annual outlook. 

British Land Company declined 1.1% to 433.0 pence, and the property firm said it acquired seven retail properties for £441 million. 

 

Japan Indexes Rebounded After Rate-Hike Worries Eased 

Stock market sentiment rebounded in Tokyo after falling sharply in the previous session amid rising tensions in the Middle East. 

The Nikkei 225 stock average jumped 2% and the Topix index increased more than 1% as the yen fell to a one-month low of 146.55 against the U.S. dollar. 

The recently appointed prime minister, Shigeru Ishiba, said it is too soon to raise the interest rate after a meeting with Bank of Japan Governor Kazuo Ueda. 

Prime Minister Ishiba's comments weakened the yen and pushed export heavy stocks higher in Tokyo. 

On the economic front, the au Jibun Bank Japan Services PMI for September was revised lower to 53.1 from the preliminary estimate of 53.9.

Despite the slight easing of activities in the service sector, the index expanded for the third month in a row. but new orders rose modestly amid weak growth in export orders. 

On the price front, input costs increased, driven by higher import costs because of the yen's weakness and rising wages; however, the increase was the lowest in six months. 

 

Japan Stock Movers 

The Nikkei 225 stock average rose 2% to 38,581.96, and the broader Topix index advanced 1.2% to 2,685.42. 

Tech stocks led the gainers in Tokyo as investors overlooked the growing prospects of a wider war in the Middle East. 

Tokyo Electron increased 2.7% to ¥25,760.0, Advantest Corp. gained 4.7% to ¥6,865.0, and Lasertec Corp. added 4% to ¥23,705.0. 

Banks and financial services companies advanced after the yen weakened to a one-month low. 

Mitsubishi UFJ Financial increased 0.1% to ¥1,448.50, Sumitomo Mitsui Financial added 0.2% to ¥3,032.0, but Mizuho Financial edged down 1.3% to ¥2,919.0. 

Shipping companies were in focus for the second week in a row, as the U.S. port workers strike showed no sign of ending in the near future. 

Nippon Yusen jumped 3.5% to ¥5,485.0, Kawasaki Kisen Kaisha added 3.6% to ¥2,290.0, and Mitsui O.S.K. Lines increased 2.5% to ¥5,149.0. 

 

 

Hong Kong Indexes Plunged 4% as Market Rally Ran Out of Steam 

Hong Kong market indexes declined for the first time in seven days after investors turned cautious. 

Benchmark indexes in Hong Kong declined as much as 4% and halted a 6-day rally that saw indexes soar more than 23%. 

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

The $3 trillion rally over the last six trading sessions in China indexes was powered by a raft of monetary policy measures to revive investor confidence and facilitate residential property market transactions. 

Initial market enthusiasm turned into a market frenzy after local governments in Shanghai, Shenzhen, and Guangzhou eased home buying restrictions and lowered down payment requirements.

Property stocks soared as much as 60% over the last six sessions as retail investors rushed to increase exposure to residential property developers and companies linked to the construction industry. 

China's president Xi Jinping signaled big fiscal stimulus at a hastily arranged Politburo meeting last week, stoking the market rally further.

The People's Bank of China's $141 billion package to revive investor confidence and the property market is likely to fall far short of what is needed to revive consumer confidence. 

Moreover, the announced monetary stimulus measures are not deep and broad enough to change the nature of the business cycle, consumer mood, and revive the flailing job market. 

Investors are still holding out for more gains after the release of fiscal measures over the next two weeks, but previous measures by the government have failed to change China's growth trajectory. 

 

China Stock Movers 

The Hang Seng index decreased 2.8% to 21,818.41, and financial markets in mainland China are set to resume trading next week. 

Property stocks trimmed gains of the previous session after investors questioned the strength of the market rally. 

China Vanke increased 0.7% to HK $12.08, China Resources Land plunged 5.9% to HK $29.80, Longfor Group dropped 8.5% to HK $17.14, and Sun Hung Kai Properties declined 1.6% to HK $89.70. 

Electric vehicle makers erased gains of the previous session, despite five leading makers reporting a sharp gain in September unit sales. 

Li Auto declined 3.7% to HK $117.0, BYD fell 1% to HK $296.40, NIO jumped 6% to HK $55.60, and Xpeng dropped 6.3% to HK $51.55. 

Alibaba Group dropped 4% to HK $110.40, Tencent Holding declined 1.1% to HK $464.80, and Baidu Inc. dropped 4.7% to HK $109.80.