S&P500 Forecasts: Stocks drop as geopolitical tensions rise in the Middle East

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Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.51% at 33240

S&P futures -0.6% at 4280

Nasdaq futures -0.77% at 14860

In Europe

FTSE +0.05% at 7501

Dax -0.8% at 15100

  • Geopolitical risks add to concerns over inflation & higher rates
  • Fed speakers are due later today
  • USD rises on safe-haven flows
  • Oil surges on Middle Eastern tensions

Geopolitical risks add to concerns over inflation & higher rates

U.S. stocks are pointing to a weaker open as rising tensions between Israel and Hamas added geopolitical risk to ongoing concerns over high inflation and rising interest rates.

The positive tone which helped stocks on Wall Street close last week on a high has disappeared after the Palestinian group Hamas launched an attack on Israel over the weekend. As political tensions in the Middle East escalate, oil prices have surged, rebounding from last week's drop and fueling supply fears.

A prolonged up-trend in crude oil could add to inflationary pressures, which would force central banks to leave interest rates higher for a longer period of time.

These concerns come after Friday's non-farm payroll report showed that the US labour market was much stronger than expected, with almost double the number of jobs added in September than what analysts forecast.

This week, consumer inflation data will be the central focus of the economic calendar. Hot inflation figures could support the Federal Reserve's message that interest rates need to remain higher for longer. Inflation in August showed the fastest increase in inflation in over a year as petrol prices at the pump surged.

Later today, Federal Reserve speakers will be in focus and could provide further clues over the future path for interest rates.

Looking out across the week U.S. banks kick off earnings season on Friday.

Corporate news

Disney is rising premarket after Nelson Peltz’s Trian fund management has become one of Disney's largest investors with a stake in the company of over $2.5 billion Nelson Peltz and his investment team are reportedly seeking multiple board seats at the Walt Disney Company.

Citigroup trades lower pre-market after agreeing to sell its Chinese retail wealth management portfolio to HSBC

Major airlines are in focus as they suspend or halt flights to Israel following the escalation of violence between Israel and the Palestine group Haman. United Airlines is set to open lower as US regulators have urged airlines to use caution when flying in the country.

Oil stocks will be in focus after oil prices jumped 3.5% on the back of the violence in the Middle East.

The quiet period following Arm’s IPO has expired, and a wave of brokers will initiate coverage on the chipmaker. Arm’s average target price now implies around 11% potential upside. While new ratings could support the share price, gains could be limited in the near term.

S&P500 forecast – technical analysis.

S&P 500 failed to push back above 4340 last week and has rebounded lower bringing the 200 sma at 4225 into focus, with a break below here opening the door to 4200 the October low. The RSI below 50 and the 50 sma heading to cross below the 100 sma keeps sellers hopeful. Any recovery would look for a rise above 4320, last week’s high ahead of 4340.

S&P 500 FORECAST CHART

FX markets –USD rises, EUR falls

The USD is rising in risk-off trade as investors continue to digest the latest developments in the Middle East. Safe haven flows often support the dollar in times of rising geopolitical tensions. The greenback is also supported by Friday's stronger-than-expected U.S. non-farm payroll report.

EUR/USD is falling in risk-off trade and as investors digest German industrial output data, which showed the output fell again in August, dropping 0.2% more than the 0.1% forecast, spurring recession fears. The data shows that the sector remains under pressure and comes after German manufacturing PMI showed deep contraction again in September. The German economy is widely expected to have contracted in the third quarter and looks increasingly likely to fall into recession in the second half of the year. Eurozone investor sentiment is due later today.

GBP/USD is falling as investors digest developments in the Middle East. There is no high-impacting UK economic data due to be released today although Bank of England's Catherine Mann is due to speak later and could provide further insight into the future path for UK interest rates. The pound managed to gain against the US dollar last week after data showed that the UK service sector contracted to slower pace than initially expected in September.

EUR/USD -0.57% at 1.0527

GBP/USD -0.6% at 1.2120

Oil jumps on Middle East tensions

Oil prices have jumped sharply higher at the start of the week after an escalation of tensions in the Middle East following attack by Hamas on Israel over the weekend

While neither Palestine or Israel produce oil, concerns of political uncertainty in the Middle East has fueled supply concerns. The violence could have subsequent effects on geopolitical strategies of key crude producers in the region and comes at a time when supply is already tight.

The jump higher has come after oil prices tumbled around 10% last week on concerns that high borrowing costs for longer could slow economic growth.

WTI crude trades +3.6% at $84.88

Brent trades +3.6% at $87.20

Looking ahead

14:15 Fed Barr speaks

18:30 Fed Jefferson speaks

 

 

 

Related tags: US Open SPX 500 Oil USD

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