Asian stock futures in Japan, Hong Kong, and Australia reflected Wall Street's rally on Tuesday. The surge came as Federal Reserve officials downplayed the likelihood of a 2023 Fed rate hike, despite the recent surge in Treasury yields. The Israeli-Hamas conflict, which has caused a spike in oil prices due to potential threats to energy supplies, has also resulted in significant gains for gold as investors sought safe havens.
On Monday, the stock market rallied after Fed vice chair Philip Jefferson and Dallas Fed president Lorie Logan highlighted the impact of rising Treasury yields on monetary policy. They emphasized the role of high bond yields in maintaining restrictive financial conditions for price stability. Despite US bond markets being closed for Columbus Day and Indigenous Peoples Day, futures trading signaled a rise in government debt demand.
The Israeli-Hamas conflict has had significant repercussions on global markets. A surprise attack by Hamas on Israel led to a rebound in crude prices with West Texas Intermediate and Brent rising significantly. This sparked a surge in oil and gas stocks like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), as well as defense contractors such as RTX Corp, Northrop Grumman (NYSE:NOC), and Lockheed Martin (NYSE:LMT). However, Israeli companies Teva Pharmaceutical Industries (NYSE:TEVA) Ltd. and Check Point Software Technologies (NASDAQ:CHKP) Ltd. saw a decrease in US trading.
In contrast, airlines incurred losses while Disney stocks rose after activist investor Nelson Peltz increased his stake. IG analyst Chris Beauchamp underscored the absence of potential oil supply increases in the oil rally.
UBS Global Wealth Management favors fixed income over equities amidst ongoing geopolitical issues. Morgan Stanley’s Michael Wilson warned about fiscal policy constraints posing risks to US stocks at a time when the Fed is fighting high inflation.
Key events this week include the forthcoming Federal Open Market Committee meeting, the release of last meeting's minutes, IMF's latest world economic outlook and quarterly earnings results from Citigroup (NYSE:C), JPMorgan, Wells Fargo, and BlackRock (NYSE:BLK).
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