© Reuters. FILE PHOTO: A reflection of passersby walking on an electronic board showing Japan’s Nikkei average outside a brokerage house, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo
By Wayne Cole
SYDNEY (Reuters) – U.S. stock futures fell in Asia on Monday as military conflict in the Middle East boosted oil and Treasuries, while the red-hot U.S. jobs report for September raised rates in play for inflation figures later in the week.
A holiday in Japan led to poor conditions, but the initial bid was for bonds and the safe harbors of the Japanese yen and gold, with the euro the main loser.
“The risk is rising oil prices, a fall in stocks and increased volatility that supports the dollar and yen, and undermines ‘risk’ currencies,” CBA analysts said in a note.
“An Iranian response in the Strait of Hormuz is the wild card for oil supply and monetary reaction.”
Israel attacked the Palestinian enclave of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history, when the Islamist group Hamas killed 700 Israelis and kidnapped dozens more.
The danger of supply disruptions was enough to see it jump $2.93 to $87.51 per barrel, while it rose $3.04 to $85.83 per barrel. (EITHER)
Gold was also in demand, rising 0.8% to $1,848 an ounce. (GOAL/)
In currency markets, the yen was the biggest gainer, although moves were modest overall. The euro fell 0.3% to 157.44 yen, while the dollar fell 0.1% to 149.14 yen. The euro also lost 0.3% against the dollar, to $1.0556. (FRX/)
Cautious sentiment was a balm for sovereign bonds after recent heavy selling and 10-year Treasury futures rose a considerable 18 ticks. Yields were indicated around 4.71% compared to 4.81% on Friday.
Any sustained rebound in oil prices would act as a tax on consumers and add to inflationary pressures, which weighed on stocks, which fell 0.8% and Nasdaq futures lost 0.7%.
While Tokyo was closed, futures were trading down 0.7% and close to where the spot market ended on Friday.
News from the Middle East could also hurt the start of corporate earnings season, with 12 companies reporting this week, including JP Morgan, Citi and Wells Fargo.
The strength of the U.S. jobs report had fueled expectations that interest rates would need to stay high for longer, and other important evidence came from consumer price data for September.
The median forecast is for a 0.3% increase in both core and headline measures, which should cause the annual pace of inflation to slow somewhat.
Minutes from the Federal Reserve’s latest meeting will be released this week and should help gauge how serious members were about keeping rates high, or even raising them again.
Early on Monday, markets seemed to think that events in the Middle East would weigh against further Fed rate hikes and perhaps accelerate an easing of monetary policy next year.
Fed funds futures now implied an 86% chance that rates would remain unchanged in November, and priced in about 75 basis points of cuts for 2024.
China also returns from its vacation this week with a deluge of data including consumer and producer inflation, trade growth, credit and lending.
