(Bloomberg) — US futures fell while Treasuries unwound the previous day’s gains as flaring tensions in the Middle East put markets in a wait-and-see mode.
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With traders awaiting Israel’s response to a missile barrage from Iran, and Brent crude approaching $76 a barrel, geopolitical fears have replaced optimism around central bank easing as the main market driver. The escalation in the region spurred a flight to safety on Tuesday and sent Wall Street’s fear gauge — the VIX — to a key level that usually indicates more market swings are in store.
Futures on the S&P 500 slipped 0.2% and Europe’s stocks benchmark erased earlier gains. Yields on 10-year Treasuries rose five basis points to 3.78% after hitting a low of 3.69% on Tuesday as investors sought haven assets. The dollar was flat.
“Clearly there is a lot of uncertainty,” Anna Rosenberg, head of geopolitics at Amundi Asset Management, told Bloomberg TV. “Nevertheless I think the market is still very much operating in the base-case expectation that it remains more or less contained and doesn’t spiral out in an all-out war. And I think right now, that is the right thing to do.”
Further out this week, investors will be watching for nonfarm payrolls numbers on Friday to check the health of the US economy. Data Wednesday showed US companies added more jobs than expected last month, at odds with other indicators that show a cooling labor market.
In company news, JD Sports Fashion Plc fell after reporting results and after Nike Inc. reported a drop in quarterly sales after the US market close. Nike traded down more than 5% in premarket US trading.
Oil producers bucked the declines for the main European index as oil soared after Israel vowed to retaliate for Tehran’s ballistic missile attack. The severe escalation of hostilities spurred fears of a Middle East-wide war that could disrupt supplies.
The change in focus from inflation to the health of the economy, “can shift right back, especially if you look at how energy is responding to the latest Middle East flareup,” said Wei Li, chief investment strategist at BlackRock Inc., on Bloomberg TV.
Elsewhere in Europe, France plans around €60 billion ($66.4 billion) in spending cuts and tax hikes next year as Prime Minister Michel Barnier seeks to claw back a widening budget deficit. The extra yield investors demand to hold French debt over safer German peers retreated one basis point to 78 basis points after details were published, still close to the highest in more than a decade.
Japan Rates
Key events this week:
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S&P Global Manufacturing PMI on Wednesday
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Fed speakers include Richmond’s Thomas Barkin, Cleveland’s Beth Hammack, St. Louis’s Alberto Musalem and Fed Governor Michelle Bowman on Wednesday
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US nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 0.2% as of 8:20 a.m. New York time
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Nasdaq 100 futures were little changed
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Futures on the Dow Jones Industrial Average fell 0.2%
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The Stoxx Europe 600 fell 0.2%
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The MSCI World Index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.1066
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The British pound was little changed at $1.3289
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The Japanese yen fell 1.1% to 145.09 per dollar
Cryptocurrencies
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Bitcoin rose 0.4% to $61,048.82
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Ether was little changed at $2,453.46
Bonds
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The yield on 10-year Treasuries advanced five basis points to 3.78%
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Germany’s 10-year yield advanced six basis points to 2.10%
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Britain’s 10-year yield advanced nine basis points to 4.03%
Commodities
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West Texas Intermediate crude rose 3.1% to $71.97 a barrel
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Spot gold fell 0.5% to $2,648.76 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck and Winnie Hsu.
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