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Middle East, weak earnings reports pressure stock markets

A cocktail of geopolitical developments, concerns about sticky inflation in the US and a poor start to the first-quarter earnings season were putting pressure on equity markets to start the week. Stocks spiralled downward at the end of last week after bank earnings in the US failed to convince investors. Asian stocks were also mostly in negative territory at the start of the new week due to an escalation in the conflict in the Middle East. 

Shane Strowmatt, LGT
Reading time
5 minutes
Israel map
© Shutterstock

Iran attacked Israel with more than 300 drones and missiles at the weekend, a retaliatory attack for what is believed to have been an Israeli strike on an Iranian diplomatic facility in Syria. Nearly all of the projectiles were intercepted by Israel and the US, but the escalation adds another element to the already complicated situation in the Middle East. Oil prices were fairly stable with Brent trading above USD 90 and West Texas Intermediate above USD 85 per barrel. Gold fell along with stocks to finish last week and was trading near USD 2350 per ounce.

Sentiment on stock markets in the Asia-Pacific region was down amid the geopolitical insecurity on Monday. In Tokyo, the Nikkei 225 fell 0.9% and South Korea’s Kospi fell 0.4%. In Australia, the S&P/ASX 200 was trading 0.5% lower. Hong Kong’s Hang Seng Index was also down 0.7%, while the Shanghai Composite was the only major index out of the region making gains on Monday, up 1.3%.

In New York, stocks plunged on Friday. The CBOE Volatility Index - a gauge of market fear - spiked during the final session of the week, hitting its highest level in nearly half a year. The Dow Jones Industrial dropped 1.2% and the S&P 500 fell 1.5%. The Nasdaq-100 finished Friday’s session with a loss of 1.7%.

US banks kicked off the first-quarter earnings season on Friday with largely negative market reactions. JPMorgan shares tumbled 6.5% even as higher interest rates helped the bank to revenue that beat market expectations. Wells Fargo lost 0.3% and Citigroup fell 1.7%. The benchmark KBW Bank Index lost 1.5% on Friday. Goldman Sachs reports its quarterly earnings on Monday.

Market participants are looking ahead to US retail sales on Monday for clues about the strength of the US consumer. China presents gross domestic product and retail sales on Tuesday, while the UK will dominate the rest of the week’s macro releases with unemployment data on Tuesday, inflation on Wednesday and retail sales on Friday. Additionally, Bank of England Governor Andrew Bailey will speak on Tuesday and Wednesday.

In US macroeconomic data from last week, the University of Michigan Consumer Sentiment Index slumped to 77.9 in April, down from 79.4 in March, mostly due to consumers’ concerns about price increases. Inflation expectations for the coming year increased to 3.1% from 2.9% last month.

Macroeconomic data released on Friday out of Europe painted a different picture of inflation on the continent. In Europe’s largest economy, Germany, inflation was confirmed to have fallen to its lowest level since before the start of the war in Ukraine at 2.2% in March, down from 2.5% in February. The German Consumer Price Index is now only slightly higher than the European Central Bank’s 2% inflation target. The Euro Stoxx 50 fell 0.3% on Friday and Germany's DAX ended the session down 0.3% as well.

Corporate news in focus: Quarterly figures from Charles Schwab, Goldman Sachs.

Economic data in focus: Swiss Producer and Import Price Index, Empire State Manufacturing Survey, US retail sales.


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