Summary: On Monday morning in Asia, Middle East tensions escalated as Israel declared war against Hamas following a deadly attack on Saturday. This led to a 3% surge in oil prices, a higher opening for the dollar, and gains in JPY and CHF, while US equity index futures retreated by around 0.7%. The focus today is on the potential spread of instability in the region. On Friday, the S&P500 and Nasdaq 100 rose by 1.2% and 1.7%, ignoring a hotter-than-expected payrolls report. Treasury yields fluctuated significantly after a surge in non-farm payrolls, with 10-year yields reaching 4.885% before settling at 4.80%. China's A-share market reopened after the Golden Week, with domestic trips recovering by 4.1%, and tourism revenues growing modestly by 1.5% compared to 2019 levels before the pandemic. Due to the typhoon, the morning session of the Hong Kong bourse will be canceled and trading is expected to resume in the afternoon.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Last Friday, the markets traded higher, shrugging off the hotter-than-expected payrolls report. The S&P500 and the Nasdaq 100 rallied by 1.2% and 1.7%, finishing the week 0.5% and 1.8% higher, respectively. The advance was broad-based, with mega-cap technology stocks leading the way. Today, investors are focused on the energy market's reactions to the tension that erupted in the Middle East over the weekend. In earning Asian hours, the S&P 500 eMini and Nasdaq 100 eMini futures are around 0.7% lower from their Friday closes.
Fixed income: Treasury yields swung violently after a surge in non-farm payrolls. The 10-year yields jumped to as high as 4.885% after the payrolls release and then reversed to as low as 4.75% when investors found comfort in slower wage growth. Large bear-steepening moves also surged and then faded. When the day came to a close, the 2-year yield finished 6bps higher at 5.08%, and the 10-year yield was 8bps higher at 4.80%. The Treasury curve's steepening trend is likely to continue as the short-end benefits from safe-haven bids, and the long-end suffers from the prospect of higher energy prices if the conflicts between Israel and the Palestinian militant groups escalate.
China/HK Equities: The Hang Seng Index rallied by 1.6% bouncing from near the year-to-date lows last Friday, in very light volume, led by healthcare and property stocks. Today, the focus will be on the performance of the mainland A-share market which resumes trading after the 6-trading session holiday and the tension in the Middle East. Due to the typhoon, the morning session in the Stock Exchange of Hong Kong will be cancelled and the afternoon session will begin at 2:00 pm local time.
FX: Risk sensitive trades were in focus early in Asia amid the Middle East tensions. Dollar gapped higher at the open, and gains were also seen in JPY and CHF. USDJPY retreated from Friday’s post-NFP highs of 149.53 while USDCHF stayed below 0.91 and EURCHF dipped below 0.96. NOK was the early outperformer on the G10 board as oil prices jumped 4% higher. USDNOK slid below 10.9 while USDCAD traded around 1.3660. Risk sensitive currencies AUD and NZD plunged.
Commodities: Oil prices surges by over 3% early in Asia on Monday with tensions flaring in Middle East. Focus remains on if and how the instability spreads in the region, particularly with WSJ reporting that Iran was involved. If that invokes a US response, oil prices could face more upside pressures. Saudi Arabia, however, expressed their willingness to increase production by early next year if oil prices remain high. Gold also gapped higher to return back to $1850 on safe-haven demand, and silver rose over 1% to get close to $22.
Macro:
Macro events: China’s new RMB loans (Sep) exp. 2,550bn vs prior 1,358bn & aggregate financing (Sep) exp. 3,800bn vs. 3,124 prior (expected to release between Oct 9-15).
In the news:
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