Bonds Rally, Stocks Drop as Mideast Fears Mount: Markets Wrap

(Bloomberg) — Bond yields and stocks dropped while gold soared after the White House said there were indications Iran is preparing to attack Israel.

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The S&P 500 and Nasdaq 100 fell by more than 1% each. Treasuries across the curve fell, some by more than 8 basis points. The two-year dropped to around 3.6%.

A report that the US is actively supporting preparations to defend Israel against the possible attack spurred a flight to haven assets. Gold climbed to near $2,670 an ounce while a gauge of the dollar strengthened.

Meanwhile, economic data sent mixed signals. The US ISM price index fell by the most since May 2023, while US job openings rose in August to a three-month high, at odds with other data indicating slowing demand for workers.

Oil prices spiked as the risks of a wider conflict in the Middle East grew. Earlier, Israel said it had begun “targeted ground raids” in Lebanon.

Wall Street’s fear gauge — the VIX — spiked higher, hitting a key level that usually indicates more volatility ahead.

Tuesday kicks off a historically positive, though often volatile, period for equities. The S&P 500 set its 43rd closing record on Monday notching a third-quarter rally that capped the longest such winning stretch since 2021.

“October has been a much friendlier month to bulls from start to finish, but in between it hasn’t been a walk in the park,” according to Bespoke Investment Group strategists. It’s average intramonth peak-to-trough decline of around 4.6% is the largest of any month, according to Bespoke data going back to 1945.

Money markets imply a one-in-three chance the Fed will deliver another half-point cut in November, and price a total of about 190 basis points of easing by the end of next year. That scenario may not pan out as expected, Larry Fink warned.

“The amount of easing that’s in the forward curve is crazy,” Fink, the chief executive officer of BlackRock Inc. said in an interview with Bloomberg Television. “There’s room for easing more, but not as much as the forward curve would indicate.”

Euro-area inflation slowed below the European Central Bank’s 2% target for the first time since 2021, prompting money markets to add to bets on another quarter-point decrease by the ECB this month. Earlier, ECB President Christine Lagarde said the bank is becoming more optimistic about getting price pressures under control.

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Key events this week:

• Atlanta Fed President Raphael Bostic, Fed Governor Lisa Cook, Richmond Fed President Thomas Barkin and Boston Fed President Susan Collins speak Tuesday

• ECB policy makers speaking include Olli Rehn, Luis de Guindos, Isabel Schnabel and Joachim Nagel on Tuesday

• BOE chief economist Huw Pill speaks Tuesday

• South Korea CPI, S&P Global Manufacturing PMI on Wednesday

• Fed speakers include Richmond’s Thomas Barkin, Cleveland’s Beth Hammack, St. Louis’s Alberto Musalem and Fed Governor Michelle Bowman on Wednesday

• US nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.1% as of 10:14 a.m. New York time

• The Nasdaq 100 fell 1.6%

• The Dow Jones Industrial Average fell 0.8%

• The Stoxx Europe 600 fell 0.5%

• The MSCI World Index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.5% to $1.1083

• The British pound fell 0.5% to $1.3310

• The Japanese yen rose 0.4% to 143.06 per dollar

Cryptocurrencies

• Bitcoin fell 1.7% to $62,696.51

• Ether fell 1.4% to $2,578.26

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.71%

• Germany’s 10-year yield declined 10 basis points to 2.03%

• Britain’s 10-year yield declined eight basis points to 3.92%

Commodities

• West Texas Intermediate crude rose 2.7% to $70.02 a barrel

• Spot gold rose 1.2% to $2,666.04 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Allegra Catelli, Alice Atkins, Cecile Gutscher and Margaryta Kirakosian.

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