US stock futures declined on Monday as the armed conflict within the Middle East increased the price of oil and Treasury bonds. In addition, the hot September US jobs report increased the rate stakes for inflation statistics later in the week.
The market was light due to holidays in South Korea and Japan, but the initial demand was for bonds as well as safe haven assets like gold and the yen, while oil prices increased by over $3 a barrel.
In the beginning, the Israeli shekel fell to its lowest level since early 2015 at 3.9880 to the dollar, forcing the nation's central bank to decide to sell up to $30 billion in shekels.
Because of the quick move, the currency's losses were reduced to 3.9050, and the central bank also announced that it would support the markets with liquidity if needed.
The danger is increased oil prices, a drop in stock prices, and a rise in volatility, which would strengthen the US dollar and Japanese yen and weaken "risk" currencies, according to CBA analysts.
They noted that there was a possibility that the Iranian oil supply could be disrupted in particular.
A sudden decrease in Iran's exports of oil has the potential to drive Brent futures over $US100/bbl soon, given the shortages already present in the real oil markets in Q4 2023.
In retribution for one of the deadliest attacks in the history, in which Hamas killed 700 Israelis and kidnapped dozens more, Israel bombarded the Palestinian region of Gaza on Sunday, killing hundreds of civilians.
In contrast to US crude, which increased $3.28 to $86.07 a barrel, Brent increased $3.14 to $87.72 per barrel due to the threat of supply interruptions.
Gold prices rose 1.1% to $1,852 per ounce as a result of increased demand.
Although overall changes in the currency markets were small, the Japanese yen was regarded as the biggest gainer. The euro decreased by 0.3% to 157.37 yen, while the dollar decreased by 0.1% to 149.14 yen. The euro fell by 0.3% to $1.0552 on the dollar.
Predicting Fed easing
Any prolonged increase in the cost of oil would be a tax upon consumers and heighten inflationary pressures that would impact the stock market and cause the S&P 500 futures to fall 0.8% and the Nasdaq futures to fall 0.7%.
FTSE futures dropped 0.1%, and EUROSTOXX 50 futures fell 0.4%.
Nikkei futures traded 1.0% lower while Tokyo was closed, near where Friday's cash market closed.
The strength of the jobs report of the US had raised anticipation that rates of interest would need to remain in a high level for longer, with September consumer price data facing another major test.
This week's due date for the minutes of the most recent Federal Reserve conference will help assess how serious the members were about maintaining current interest rates or even raising them once more.
Markets appeared to believe early on Monday that future situations within the Middle East would militate against more Fed rate increases and perhaps speed a policy easing in the coming year.
In November, there was an 86% probability that rates would remain unchanged, according to Fed fund futures, and a 75 basis point drop was priced in for 2024.
With 12 S&P 500 businesses reporting this week, which include JP Morgan, Wells Fargo, and Citi, the news in the Middle East would derail the start of the earnings season.
With a margin reduction of 55 basis points to 11.2% and flat EPS compared with last year, Goldman Sachs expects 2% sales growth.
According to Goldman analysts, moderate sales growth and slight margin improvement will be supported by near-trend growth in the economy and lowering inflation pressures. However, significant margin expansion is not very likely considering the 'higher for longer' interest rate regime, elastic salary growth, and some tech businesses' investments in AI.