S&P 500 and Nasdaq Down 1%, Crude Oil Jumps 3% Amid Iran-Israel Tensions

Alexander Garcia
07 Oct, 2024
Miami

Stocks drifted lower in Monday's trading as investors weighed the impact of rapidly intensifying Hurricane Milton and the growing belief that Israel is preparing to escalate its offensive in the Middle East. 

The S&P 500 index decreased 0.6%, the Nasdaq Composite fell 0.8%, and the yield on 10-year U.S. Treasury notes jumped above 4% for the first time in five weeks. 

Hurricane Milton was just upgraded to a Category 5 storm, the strongest in the season so far, by the National Hurricane Center. 

The storm is likely to weaken substantially once it makes landfall on the Gulf Coast of Florida, but it is expected to grow in size, covering a wider swath of area from Naples at the south to Cedar Key at the north. 

Milton could cause a storm surge as high as 12 feet in Tampa Bay as Florida prepares for its second hurricane in as many weeks after Hurricane Helena caused widespread damage in four states and more than 220 people lost their lives. 

Middle East tensions also weighed on the market as investors worried about the possible Israeli military strike targeting Iranian oil infrastructure. 

Texas intermediate crude oil prices rebounded above $75 a barrel, a six-week high following a 9% jump in the previous week, as tensions in the Middle East escalated. 

On the economic front, investors are looking forward to the release of U.S. consumer and producer price inflation reports for September.

Investors are anticipating CPI to ease to 2.3% and PPI to inch up to 0.1%.

Investors will also review the FOMC and ECB monetary policy meeting minutes and hope to get deeper insights into the latest rate decisions. 

Investors are also awaiting the release of retail sales in the Euro Area, international trade balances in France and Germany, and industrial output data for Germany.

In Asia, Japan is scheduled to release its current account balance, and the Reserve Bank of India is likely to leave its policy rate unchanged.

Markets in mainland China are scheduled to reopen on Tuesday after a week of national holidays amid high expectations of fiscal stimulus measures. 

Investors are also looking forward to the start of earnings season and leading financial companies including BlackRock, JP Morgan Chase, BNY Mellon, and Wells Fargo. 

Delta Airlines, PepsiCo, and Fastenal are other leading companies on the tap. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.6% to 5,716.99, the Nasdaq Composite fell 0.4% to 18,039.48, and the Russell 2000 index fell 0.9% to 2,191.25. 

The yield on 2-year Treasury notes edged higher to 4.01%, 10-year Treasury notes inched up to 4.02%, and 30-year Treasury bonds inched higher to 4.30%.

WTI crude oil increased $2.52 to $76.92 a barrel, and natural gas prices edged down 11 cents to $2.72 a thermal unit.

Gold fell by $7.25 to $2,645.31 an ounce, and silver decreased by $0.45 to $31.73.

The dollar index, which weighs the US currency against a basket of foreign currencies, edged higher to 102.46.

 

U.S. Stock Movers

Arcadium Lithium PLC soared 30% in New York trading to $4.02 after the mining giant Rio Tinto expressed interest in acquiring the company.

Property and casualty insurance stocks were in focus after Hurricane Milton strengthened into a Category 4 storm.

Hurricane Milton is forecast to approach Florida by Wednesday but is likely to weaken to a Category 1 storm after the landfall, according to the National Hurricane Center. 

AIG declined 1.4% to $74.94, Allstate Corp. declined 3.4% to $184.02, Chubb Ltd. dropped 3.3% to $281.22, and Travelers Companies fell 3.2% to $228.86. 

Universal Insurance Holdings plunged 15% to $17.85 on the worries that the insurance with heightened exposure to Gulf Coast could face heightened hurricane risks and higher claims. 

 

European Markets Weighed by Higher Bond Yields and Persistent Middle East Tensions 

Stock market indexes in Europe declined for the second session in a row, pressured by higher bond yields following the release of a robust U.S. jobs report last week. 

Benchmark indexes in Paris, London, and Frankfurt struggled to advance, and investors reviewed the latest update of German factory orders and the Euro Area retail sales. 

 

German Factory Orders Dragged Down by Volatile Large-scale Orders 

Germany's factory orders declined at a faster-than-expected monthly pace of 5.8% in August from the upwardly revised increase of 3.9% in July, the Federal Statistical Office, Destatis, reported Monday. 

The orders declined at the steepest face since January because of the weakness in large-scale orders for trains, planes, and ships. 

Incoming orders declined 3.4% from July, excluding large-scale orders.

On an annual basis, calendar-adjusted orders fell 3.9% from the corresponding month last year. 

In the capital goods and intermediate goods sectors, monthly incoming orders in August fell by 8.6% and 2.2%, respectively, while incoming orders for consumer goods fell by 0.9%.

Domestic orders fell 10.9%, foreign orders declined 2.2%, while orders from the eurozone decreased by 10.5%. 

 

Euro Area Retail Sales Edged Up In August 

Eurozone retail sales struggled to advance in August amid high costs of living as consumers restricted purchases to basic items.

Retail sales advanced 0.2% from the previous month, when sales growth was flat. 

From a year ago, retail sales rose 0.8%, as a 2.5% increase in automotive fuel overwhelmed the decline of 0.2% in food, beverage, and tobacco sales.

 

Europe Indexes and Yields

The DAX index decreased by 0.1% to 19,104.510; the CAC-40 index rose by 0.5% to 7,576.02; and the FTSE 100 index increased by 0.3% to 8,303.62. 

The yield on 10-year German bonds edged higher to 2.25%, French bonds inched higher to 3.02%, the UK gilts edged up to 4.20%, and Italian bonds increased to 3.56%.

The euro edged lower to $1.09; the British pound inched lower to $1.30; and the U.S. dollar weakened to 85.73 Swiss cents.

Brent crude increased $2.50 to $80.56 a barrel, and the Dutch TTF natural gas fell by €0.22 to €40.97 per MWh. 

 

Europe Stock Movers

Richemont SA increased 0.8% to CHF 131.95 after the Swiss luxury goods maker agreed to sell its online business Yoox Net-a-Porter to the German online retailer Mytheresa. 

Richemont agreed to sell loss-making YNAP with a cash position of €555 million and provide additional revolving credit lines of €100 million in exchange for a 33% equity stake in the German online retailer. 

The transaction is expected to close in the first half of 2025, and Richemont plans to take a 1.3 billion asset write down related to the transaction, including the cash to be left in the YNAP account.

Telecom Italia S.p.A. declined 0.2% to €0.26 after the company's board authorized chief executive officer Pietro Labriola to negotiate the purchase of TI Sparkle S.p.A. 

3i Infrastructure PLC increased 0.6% to 343.50 pence, and the company received a binding offer for a 33% stake in Valorem, an independent European renewable energy company. 

Heidelberg Materials AG increased 1.8% to €99.14 following a report that the German cement company has entered into negotiations to sell its cement operations in India for as much as $1.2 billion. 

 

Japan Indexes Extend Winning Streak to Third Day, Yen Dropped to Five-Week Low 

Stock market indexes in Tokyo extended their winning streak for the third session in a row after the yen weakened sharply.

The Nikkei 225 stock average and the Topix index advanced more than 2% in Monday's trading after the yen dropped to a five-week low. 

The yen traded at 148.45 against the U.S. dollar after the U.S. economy added jobs at the fastest pace in six months in September, easing pressure on the Bank of Japan to raise rates in the immediate future.

Investors are also anticipating that the Bank of Japan policymakers will hold rates steady on October 31, after the newly appointed prime minister Shigeru Ishiba made a U-turn and supported a gradual increase in interest rates. 

Earlier, Ishibara had supported hawkish monetary policy and aggressive rate hikes before assuming the leadership position. 

Investors reviewed the retail sales and industrial production data released last week and reassessed the rate path outlook amid the rising prospects that the U.S. Federal Reserve is likely to achieve the so-called soft landing, where policymakers manage to cool inflation while keeping the economic growth intact. 

Last week the government said Japan's annual retail sales growth slightly accelerated to 2.8% in August from 2.7% in July.

Retail sales increased for the 29th month in a row, supported by the increase in wages, which continue to support higher consumption of basic items. 

Japan’s industrial production declined in August, and manufacturing extended contraction in September, but the sentiment among large manufacturers was steady in the third quarter.

 

Japan Stock Movers 

The Nikkei 225 Stock Average increased 2.3% to 39,530.29, and the broader Topix index advanced 2.1% to 2,751.12. 

Retail stocks were in focus ahead of the start of the earnings season this week. 

Aeon Corp. declined 0.5% to¥3,960.0, Fast Retailing gained 3.3% to¥50,850.0, Isetan Mitsukoshi Holdings added 7.8% to¥2,489.50, and Seven & I jumped 2% to¥2,238.50. 

Mitsubishi UFJ Financial added 3.9% to ¥1,537.50, Sumitomo Mitsui Financial increased 4% to ¥3,215.0, and Mizuho Financial Group gained 4.6% to ¥3,108.0. 

Vehicle makers advanced despite the growing anxieties about Chinese electric vehicle makers making inroads in global markets. 

Toyota Motor Corp. advanced 2.6% to ¥2,654.50, Honda Motor Corp. jumped 2.7% to ¥1,606.0, and Nissan Motor gained 1.7% to ¥421.30.