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Stocks continue sell-off due to geopolitical tensions and higher rates

Developments in the Middle East as well as higher rates continued to pressure equity markets late in the week. Yields on 10-year Treasuries retreated back below the 5% mark after briefly touching the psychologically important level for the first time in 16 years on Thursday. Gold was finishing the week strong, trading just under 2000 dollars per ounce.

Shane Strowmatt, LGT
Reading time
5 minutes

Tensions in the Middle East remained high at the end of the week with a US warship near Yemen intercepting projectiles likely headed toward Israel. Drones and missiles sent by the Iran-friendly Houthis would add another front to the already complicated situation in the region. US troops have also been attacked in Iraq and Syria.

In the Asia-Pacific region, the geopolitical tensions were felt on all markets with stock markets trading in the red across the board. Japan’s core inflation decelerated to less than 3% for the first time in more than a year, but that couldn’t save Japanese stocks from losses on Friday. Tokyo’s Nikkei 225 was faring better than most major Asian indices, trading down 0.2%. China’s central bank left its benchmark lending rate unchanged on Friday, in line with market expectations. Hong Kong's Hang Seng Index and the Shanghai Composite both feel around 0.5%. In South Korea, the Kospi was the region’s largest loser, down 1.3%. In Australia, the S&P/ASX 200 was trading 1.1% lower.

In New York, stock indices continued to fall on Thursday despite a continued show of strength from the labour market. Weekly new jobless claims came in at 198,000 last week, down from 210,000 the week before. Federal Reserve Chair Jerome Powell added to market worries on Thursday, saying that strength of the US economy and labour market could require tighter monetary policy to tame inflation. But the recently increased rise in yields was helping to tighten financial conditions and rein in the strong economy, he noted. Weakness could be found, however, in the real estate market with existing home sales dropping to a 13-year low in September. The Dow Jones Industrial lost 0.8% and the S&P 500 fell 0.9% on Thursday. The Nasdaq-100 also dropped 0.9%.

Earnings season continued with high-profile tech companies out of the US. Netflix shot up 16% on Thursday after the company reported subscriber growth and increases to subscription prices. Tesla shares fell 9.3% after the electric car manufacturer released third-quarter results that missed market expectations. Nokia’s stock was down 6.4% after the company posted a 69% plunge in third-quarter profit year-on-year largely due to weak demand for its 5G products and said it will have to cut as many as 14,000 jobs. After reporting third-quarter earnings, SAP gained 5% and Schindler was up 3.3%. Nestlé lost 3.4% and Roche dropped 4.4% after reporting third-quarter revenue figures.

Corporate news in focus: Q3 figures from Sika, American Express, Schlumberger.

Economic data in focus: UK retail sales (08:00 CET), German Producer Price Index (08:00).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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