Middle East tension, port strike see nervous start to Q4 By Reuters

A look at the day ahead in US and global markets from Mike Dolan

With tensions in the Middle East returning, US dock workers on strike and global industry under the cosh, the final quarter of 2024 promises to be a little more turbulent for world markets than the relatively calm first nine months.

The fourth quarter had barely begun on Tuesday as 12 months of intense conflict in Gaza and Lebanon spilled over again into another direct standoff between Israel and Iran – roiling recently listless energy markets and prompting tight asset coverage of risk.

With year-end political risks already elevated due to the US election, a fresh flare-up of violence in the Middle East has added anxiety to the sidelines – even as most economic and fundamental market conditions still look positive.

Iran said early Wednesday that its missile attack on Israel was over, barring further provocations, even as Israel and the United States vowed to retaliate against Tehran as fears of a wider war simmered.

But as so often over the past year, the market’s reaction to the latest geopolitical twist has been fairly limited so far.

prices – with an eye on the OPEC+ ministerial meeting on Wednesday – retreated above $70 a barrel – but that only came back early last week. The annual declines in crude oil, which depress annual inflation rates around the world, continue to approach 20%.

No change in OPEC policy is currently expected and the group is set to increase output from December by 180,000 bpd monthly. And Saudi Arabia has warned that oil prices could fall as low as $50 a barrel if OPEC+ members fail to meet agreed production targets, the Wall Street Journal reported.

In the United States, port strikes on the US East Coast could distort monthly economic data and the inflation index at a critical time for policymakers – although there are doubts whether any damage would be lasting and some of the biggest concerns are for European automakers already locked out.

But there is no doubt that the global industrial economy is struggling badly again, judging by the flow of US and global manufacturing surveys for September released on Tuesday.

JPMorgan’s global factory index now shows the deepest drop in global activity this year and just one move away from the deepest drop since the pandemic shock of 2020.

However, there were some positives in the US readings, which showed an improvement in new orders and factory input prices falling to nine-month lows. Along with news of an economy-wide increase in job openings in August, the economic picture of a “soft landing” is holding together nicely.

In a big week for labor market data, the ADP private sector payrolls report is due out later on Wednesday, along with another long list of Federal Reserve speakers.

And despite the geopolitical shock, interest rates and stock markets have remained relatively stable.

That’s down less than 1 percent from Tuesday’s record highs, and stock futures are only modestly lower ahead of the bell on Wednesday. The volatility gauge is just below 20, a level it briefly crossed for the first time in three weeks on Tuesday.

Fed futures prices are basically unchanged since Monday.

“Safety” bids in US Treasuries after news of the Iran attack have largely been canceled already – with 10-year yields back just over 3.75%, having completed a round trip from lows of just under 3, 70% on Tuesday.

Gold prices remained flat on Wednesday and didn’t even hit new highs in Tuesday’s moves.

The dollar held on to gains, perhaps partly due to safe-haven demand, but it was mostly against the euro, which is suffering from accelerating speculation from the European Central Bank.

With euro zone inflation falling below target, European manufacturing contracting and the regional auto sector in deep trouble, economists have been quick to revise the ECB’s forecasts over the past week and most do not see another rate cut this month.

Market mood around the world on Wednesday was also more circumspect.

Asian shares were mostly lower, with Tokyo underperforming, losing 2%.

However, the yen returned any tangential offer of safety it may have received, with Bank of Japan Governor Kazuo Ueda also saying the central bank must be alert to the fallout from volatile markets and global economic uncertainties before proceeding further. with additional interest rate increases.

But with markets in mainland China closed for the rest of the week, Hong Kong was the only sign of continued optimism about last week’s frenetic economic stimulus and rose another 6 percent at Tuesday’s reopening there.

European shares rose again.

In company news, NIKE (NYSE: ) withdrew its full-year earnings guidance on Tuesday, just as a new CEO is set to take over at the sportswear giant as it faces a holiday season that could be filled with discounts and weak site traffic its web and mobile applications.

That sent Nike shares down 6% ahead of Wednesday’s open.

Key developments that should provide more direction for US markets later on Wednesday:

* September US ADP Private Sector Payrolls; Brazil August industrial production

* OPEC+ ministerial panel meets to review oil policy

* Cleveland Federal Reserve President Beth Hammack, St. Fed President Louis, Alberto Musalem, Richmond Fed Chief Thomas Barkin and Federal Council Governor Michelle Bowman all speaking; Isabel Schnabel, member of the board of the European Central Bank, speaks

* German Chancellor Olaf Scholz meets in Berlin with French President Emmanuel Macron; British Prime Minister Keir Starmer met in Brussels with the President of the European Commission, Ursula von der Leyen

* US Corporate Earnings: Conagra Brands (NYSE: ), Levi Strauss (NYSE: ), RPM International (NYSE: ), NovaGold Resources

(By Mike Dolan; Editing by Gareth Jones; [email protected])