Markets weak as US and allies try to calm Middle East tensions

European stocks and US equity futures fluctuated while Treasuries dropped as traders tracked efforts by the US and its allies to prevent further escalation of the Israel-Hamas conflict.

Technology stocks led declines in Europe’s Stoxx 600 index after Bloomberg reported that the US is considering further restrictions to curb China’s access to advanced semiconductors. Polish stocks jumped the most since May 2022 and the zloty rallied as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.

“The zloty should continue to strengthen further in the near-term in anticipation of improving relations with the European Union that will help to support growth and attract capital inflows,” said Lee Hardman, senior currency analyst at MUFG Bank.

Markets steadied slightly after last week’s rush into haven assets, as traders await further developments in the Middle East. S&P 500 contracts and those for the Nasdaq 100 were steady. Treasury 10-year yields rose more than six basis points after dropping 19 basis points last week. Gold declined more than 1%.

Oil prices traded in a narrow range as US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. A sharper escalation could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the EU have designated a terrorist group. 

A gauge of Asian shares slipped as stocks dropped in mainland China despite the central bank making the biggest medium-term liquidity injection since 2020.

Headwinds in China’s markets are growing. The US has moved to tighten curbs on advanced chip technology and concerns continue about the mainland property sector. The People’s Bank of China injected a net 289 billion yuan ($39.6 billion) via a medium-term lending facility on Monday and kept the policy rate unchanged at 2.5%.

The US said it will tighten sweeping measures that restrict China’s access to advanced semi-conductors and chip-making gear in a bid to prevent its geopolitical rival from getting a military edge. 

Elsewhere in currencies, a gauge of dollar strength edged lower, while New Zealand’s dollar led gains among major peers after the country elected a center-right government on Saturday. 

Traders are also keeping a close eye on the latest economic data and parsing comments from central bank officials for clues on the policy outlook. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data, despite a lift in US consumers’ year-ahead inflation expectations in early October. 

Key updates on the state of the global economy due this week include Chinese growth figures, inflation readings in Japan, the UK and the euro zone. Meanwhile, Fed chairman Jerome Powell is set to speak later this week following a string of stronger-than-expected data readings. 

Key events this week:

• Russian Foreign Minister Sergei Lavrov visits China, Monday
• US Treasury Secretary Janet Yellen meets with euro-area finance ministers in Luxembourg, Monday
• European Central Bank governing council member François Villeroy de Galhau speaks, Monday
• Bank of England chief economist Huw Pill speaks, Monday
• US Empire Manufacturing index, Monday
• Philadelphia Fed President Patrick Harker speaks, Monday
• Chinese President Xi Jinping hosts world leaders at the Belt and Road Initiative forum in Beijing, with Russian President Vladimir Putin expected to attend, Tuesday
• Germany ZEW survey expectations, Tuesday
• UK jobless claims, unemployment, Tuesday
• Joint European Central Bank/IMF policy and research conference, Tuesday
• US retail sales, business inventories, industrial production, cross-border investment, Tuesday
• Goldman Sachs, Bank of America earnings, Tuesday
• New York Fed President John Williams moderates discussion, while Richmond Fed President Tom Barkin speaks at a separate event, Tuesday
• Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday
• China GDP, retail sales, industrial production, Wednesday
• UK CPI, Wednesday
• Eurozone CPI, Wednesday
• Morgan Stanley, Netflix, Tesla earnings, Wednesday
• Federal Reserve issues Beige Book economic survey, Wednesday
• Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday
• Australia unemployment, Thursday
• Japan trade, Thursday
• China property prices, Thursday
• US initial jobless claims, Thursday
• Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• President Joe Biden hosts the European Union’s Ursula von der Leyen in Washington, Friday
• Philadelphia Fed President Patrick Harker speaks, Friday

Some of the main moves in markets: 

Stocks

• The Stoxx Europe 600 fell 0.2% as of 8:59 a.m. London time
• S&P 500 futures were little changed
• Nasdaq 100 futures were little changed
• Futures on the Dow Jones Industrial Average rose 0.1%
• The MSCI Asia Pacific Index fell 1%
• The MSCI Emerging Markets Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.2% to $1.0534
• The Japanese yen was unchanged at 149.57 per dollar
• The offshore yuan was little changed at 7.3148 per dollar
• The British pound rose 0.3% to $1.2174

Cryptocurrencies

• Bitcoin rose 2.4% to $27,854.24
• Ether rose 0.9% to $1,578.96

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.68%
• Germany’s 10-year yield advanced four basis points to 2.78%
• Britain’s 10-year yield advanced six basis points to 4.44%

Commodities

• Brent crude fell 0.3% to $90.58 a barrel
• Spot gold fell 1.1% to $1,911.54 an ounce

This story was produced with the assistance of Bloomberg Automation.