Israel has retaliated against Iran. Investors run to safe assets

By JustMarkets

At Thursday’s close, the Dow Jones Index (US30) was up 0.06%, while the S&P 500 Index (US500) decreased by 0.22%. The NASDAQ Technology Index (US100) closed positive 0.1% yesterday. A rise in T bond yields on Thursday pressured stocks. Hawkish comments from the Federal Reserve pushed bond yields up and pressured stock indices when New York Fed President Williams and Atlanta Fed President Bostic said the Fed would not rush to cut interest rates. In addition, weakness in chip company stocks weighed on the overall market for the second session. Stocks found some support from Thursday’s US economic reports, which were mostly better than expected and bolstered the outlook for a soft landing.

The US weekly jobless claims were unchanged at 212,000, indicating a robust labor market. The Philadelphia Fed Business Outlook Index for April unexpectedly rose by 12.3 to a 2-year high of 15.5 vs. expectations of a decline to 2.0. The US home sales for March fell by 4.3% m/m to 4.19 million, slightly weaker than expectations of 4.20 million.

Tesla (TSLA) shares fell more than 3% and topped the NASDAQ (US100) losers list after Deutsche Banks downgraded the stock to “hold” from “buy.” Meta Platforms (META) is up more than 1% and led the NASDAQ (US100) risers after Moody’s Ratings Services upgraded the company’s senior unsecured debt rating to Aa3 from A1.

Geopolitical risks in the Middle East remain a negative factor for risk assets. On Friday morning, Israel retaliated against Iran following Tehran’s attack over the weekend. Notably, the attack was carried out on the birthday of Iranian leader Khamenei, who turns 85 today.

Bitcoin briefly dipped below the $60,000 mark on Friday before stabilizing around $61,000, hitting its lowest level in six weeks. Financial markets were swept by a wave of risky trades following reports that Israel had struck targets in Iran, Iraq, and Syria in response to Tehran’s attack on Israel over the weekend. Meanwhile, some analysts have argued that Bitcoin and other crypto-assets could provide an alternative store of value in times of geopolitical and economic uncertainty.

Equity markets in Europe were mostly up on Thursday. Germany’s DAX (DE40) added 0.38%, France’s CAC 40 (FR40) closed up 0.52%, Spain’s IBEX 35 (ES35) rose by 1.23%, and the UK’s FTSE 100 (UK100) closed positive 0.37%.

Eurozone construction output rose by 1.8% m/m in February, the largest increase in a year. In their monthly report, the Bundesbank upgraded their assessment of the German economy and said that a “slight increase” in growth is possible in Q1, an improvement from March when they forecast the economy to contract in Q1. ECB executive board spokesman de Guindos said yesterday that if there is increased confidence among ECB officials that the 2% inflation target will be met, reducing the current level of monetary policy restriction would be appropriate. His counterpart, ECB Governing Council spokesman Holzmann, said a majority vote in June would likely favor an ECB rate cut.

WTI crude futures jumped about 2% above $84 a barrel on Friday, recovering most of the losses suffered earlier in the week following reports of large explosions in Iran, Iraq, and Syria suspected to have been attacked by Israel. The reimposition of US sanctions on Venezuelan oil and potential new EU restrictions on Iran will continue to drive oil markets higher.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) added 0.13%, China’s FTSE China A50 (CHA50) rose by 0.52%, Hong Kong’s Hang Seng (HK50) gained 0.03%, while Australia’s ASX 200 (AU200) was negative 0.40%.

Malaysia’s economy grew 3.9% year-on-year in the first quarter of 2024, accelerating from the 3.0% growth in the previous period. This is the economy’s fastest growth in a year, driven by positive contributions from all sectors, led by the services sector (4.4% vs. 4.2% in Q4).

In a trilateral statement, the US, Japan, and South Korea said they will continue close consultations on currency market developments, recognizing the serious concerns of Japan and Korea about the recent sharp depreciation of their currencies. In its semi-annual report on the financial system, the Bank of Japan noted that financial conditions at companies are improving, and companies are generally quite resilient to stress. Many Japanese companies have sufficient profitability to withstand rising interest rates. Swaps estimate the odds of a 10 bps rate hike by the BoJ at 1% for the April 26 meeting and 39% for the next meeting on June 14.

S&P 500 (US500) 5,011.12 −11.09 (−0.22%)

Dow Jones (US30) 37,775.38 +22.07 (+0.058%)

DAX (DE40) 17,837.40 +67.38 (+0.38%)

FTSE 100 (UK100) 7,877.05 +29.06 (+0.37%)

USD Index 105.86 -0.09 (-0.09%)

• – Japan National Core Consumer Price Index at 02:30 (GMT+3);
• – UK Retail Sales (m/m) at 09:00 (GMT+3);
• – German Producer Price Index (m/m) at 09:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.