Middle East conflict keeps markets jittery ahead of China’s reopening, by Reuters

By Rae Wee

SINGAPORE (Reuters) – Global shares opened on a cautious note on Tuesday, while oil prices remained elevated as escalating conflict in the Middle East dampened risk appetite ahead of China’s much-anticipated reopening after a long holiday.

The benchmark index held above 4 percent in early Asian trade as a robust U.S. labor market led traders to sharply lower expectations for Federal Reserve interest rate cuts. (US/)

Hezbollah fired rockets into Israel’s third-largest city, Haifa, on Monday, and Israel appeared poised to expand its offensive into Lebanon, a year after Hamas’ devastating attack on Israel that sparked the Gaza war.

Heightened fears of widespread conflict and supply disruptions sent futures above $80 a barrel for the first time in over a month in the previous session.

The latter was 0.09% higher at $81.00 a barrel, while futures were up 0.14% at $77.25 a barrel.

“The global benchmark hit $80/bbl as expectations grow that Israel will target Iran’s oil infrastructure in retaliation for a missile attack last week. President Biden’s comments did not allay these fears,” analysts at ANZ said in a note.

“We still believe that a direct attack on Iran’s oil facilities is the least likely of Israel’s retaliatory options.”

However, the dovish mood has kept stocks on their toes since Tuesday.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.05 percent, while the Tokyo index fell 0.79 percent.

continued up 0.03%, while Nasdaq futures lost 0.01%.

But cautious stock moves could change once Chinese markets reopen from a week-long holiday later in the day. Gains and volatility could be on the cards as the Singapore-traded {{28930|FTSE Ch is up about 14% since cash markets in China closed on September 30.

Hong Kong’s China Enterprises Index rose 11 percent over the same period, indicating a catch-up rally for the mainland.

Before the break, China announced its most aggressive stimulus measures since the pandemic, in a move that sent the CSI300 up 25 percent in five sessions and sparked a rally in global equity markets.

Focus will also be on a press conference by the country’s National Development and Reform Commission at 0200 GMT for more details on the stimulus pledges that have fueled the market frenzy.

“If the result meets any expectations, it will determine whether the Hong Kong market can grow further,” said Richard Tang, China strategist and head of Hong Kong research at Julius Baer.

“Foreign investors picked up their positions last week, leading to strong growth. The second leg of the rally will likely be driven by purchases from mainland China.”

FED BETS

In the broader market, investors also weighed the future path of the Fed’s easing cycle following Friday’s blockbuster US jobs report.

Any chance of another 50 basis point rate cut next month has since been erased, and traders are even pricing in a 14.6% chance of the Fed keeping rates on hold. Only 50 bps for discounts will be priced through December.

Reflecting less aggressive Fed easing expectations, the two-year U.S. Treasury yield neared its highest level in more than a month on Tuesday and last stood at 3.9764%.

“While confidence of another 50 basis point cut is justifiably diminished … the Fed’s rate cut cycle is far from derailed,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Bank.

“Of course, the successful jobs report is a justifiable reason to reevaluate overzealous “pivot bets” on wild discounts.

However, the US dollar failed to get a further hike on the Fed’s revised expectations, having already had a strong run last week also due to haven gains related to the Middle East conflict.

It was on the back foot in early Asian trade, down 0.17 percent against the Japanese yen at 147.97, while the pound was up 0.03 percent at $1.3089.

Against a basket of currencies, the greenback fell 0.02% to 102.44, although it was near a seven-week high on Friday.

Elsewhere, it was little changed at $2,643.33 an ounce. (EMPTY/)