Stock market reacts to rising yields and Middle East tensions

The global stock market experienced a decline as a result of a combination of factors, including increasing Treasury yields and disappointing corporate earnings. Europe’s Stoxx 600 Index fell by 0.8%, with Nokia Oyj facing a drop due to missing earnings expectations and announcing significant job cuts. Nestle SA also saw a slump in shares following the report of its slowest sales growth in nearly three years. In the US, equity futures stabilized after the S&P 500 fell by 1.3% on the previous day, while Asian shares dropped by over 1%.

Meanwhile, yields on 10-year US government bonds continued to rise for the fourth consecutive day, approaching the 5% mark for the first time since 2007. John Williams, the President of the Federal Reserve Bank of New York, stated that interest rates would need to remain at restrictive levels for an extended period to bring inflation back in line with the central bank’s target.

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Investors are closely monitoring efforts to bring about peace in the Middle East. Following US President Joe Biden’s visit to Israel, United Nations Secretary-General Antonio Guterres is scheduled to visit Egypt, and UK Prime Minister Rishi Sunak has embarked on a two-day trip to the region.

Later in the day, attention will shift to US economic data, including initial jobless claims, providing updated insights into the state of the economy. A busy schedule of Federal Reserve speakers will culminate in Chair Jerome Powell’s appearance at the Economic Club of New York.

Economists at Rand Merchant Bank in Johannesburg noted, “Despite improving inflation numbers, there is a conflict as Treasury yields are rising, leading to uncertainty about the future of monetary policy. Markets anticipate that the Fed will maintain current interest rates, but they are looking to Powell for confirmation and clarity on the central bank’s views on both current economic conditions and long-term trends.”

The dollar remained stable, while the yen experienced a slight strengthening following higher-than-expected exports in Japan for September. Traders are preparing for potentially turbulent currency trading amid growing concerns that Japanese authorities may intervene. A former Bank of Japan board member suggested that the central bank might do away with negative interest rates by the end of the year.

Oil prices saw a decline as the US eased crude sanctions against Venezuela, which could potentially contribute to a global supply increase. Additionally, gold maintained its stability due to increased demand for safe-haven assets, following a nearly 7% gain since the October 7 attack by Hamas on Israel.