Mounting worries over Middle East unsettle markets


Wednesday 16:00 BST

What you need to know

  • Wall Street cautious as geopolitical concerns mount
  • Oil extends gains after reports of explosions in Riyadh
  • Treasuries and gold prices rise
  • Russian rouble weekly losses exceed 2014 Crimea crisis

Leading quote

“Equity markets in Europe are trading mostly in the red this morning with concerns about an escalation of military conflict between the US and Russian within Syria hanging over investor sentiment,” said Jane Foley of Rabobank. “In addition to the pressure on stocks, the rouble has been under extreme pressure.”

Hot topic

A ramping up of rhetoric by President Donald Trump, who warned Russia in a tweet to “get ready” for US missiles to be sent to Syria, made for an extremely nervous start to trading on Wall Street, although the main equity indices showed some resilience after falling sharply at the open.

Oil and gold prices extended early gains — with Brent hitting a fresh three and a half-year high — as reports emerged of explosions in the Saudi capital of Riyadh

The S&P 500 was 0.5 per cent lower at 2,642 in mid-morning New York trade, while the Dow Jones Industrial Average was 0.8 per cent lower.

European equities were in retreat as the continent’s bourses extend risk-off sentiment after a day of mixed trading in Asia with markets failing to take any significant succour from new signs trade tension between the US and China was easing.

“The spectre of potential US military involvement in Syria added to the flight-to-quality underpinnings for Treasuries at a moment when trade tensions appear to be waning,” said Ian Lyngen of BMO Capital Markets.

The Russian rouble continued to fall against the US dollar, taking its losses for the week to almost 10 per cent and eclipsing its drop during the Crimean annexation in 2014.

Meanwhile, in the day’s most significant data release, “core” US consumer price inflation rose at an annual pace of 2.1 per cent in March, above the Federal Reserve’s target rate of 2 per cent.

“Having warned for some time that lower inflation will prove a temporary phenomenon, the Fed will breathe a small sigh of relief,” said James Smith, an economist at ING.

“We think this makes it all the more likely that the Fed will hike [interest rates] three more times this year, although policymakers will also be watching closely to see how the recent trade escalations play out over the next few weeks.”

Equities

The Euro Stoxx 600 index was down 0.5 per cent while Germany’s Xetra Dax was 0.8 per cent and the UK’s FTSE 100 was off 0.1 per cent.

The British supermarket Tesco was the largest mover across Europe, gaining 6.2 per cent on strong earnings, while Deutsche Telekom in Germany rose on reports overnight that its US T-Mobile unit had resumed tentative merger talks with Sprint.

Russia’s Moex index was steadier, rising 1 per cent after it fell by 8.3 per cent on Monday in reaction to US sanctions.

Despite a better lead overnight from Wall Street, bourses in Japan and Australia edged lower with Japan’s Topix down by 0.4 per cent with falls for consumer, healthcare and technology stocks offsetting a strong showing by the energy segment.

The S&P/ASX 200 in Sydney closed 0.5 per cent lower but higher oil prices and a stronger commodity segment buoyed the S&P/ASX 200 Energy index, which added 1.1 per cent and pushed the ASX 300 Metals & Mining index up 1.3 per cent.

Sentiment was better, however, in Hong Kong and China. The Hang Seng index finished 0.6 per cent higher, lifted by energy and technology stocks. On the mainland, the CSI 300 index of major Shanghai and Shenzhen stocks gained 0.3 per cent.

Forex and fixed income

On foreign exchange markets, the dollar index was 0.1 per cent weaker. “The CPI print does nothing to stop the shake the US dollar’s malaise,” said Brittany Baumann of TD Securities.

The euro was 0.2 per cent higher against the dollar at $1.2379 while the British pound also nudged higher by 0.2 per cent to $1.4204. The Japanese yen was 0.3 per cent firmer against the dollar at ¥106.84.

The rouble hit its lowest levels against the US currency since November 2016, sinking 2.5 per cent to Rbs64.54 per dollar. The Turkish lira also fell prey to heightened Syria fears, retreating 0.7 per cent to TL4.14 against the dollar after earlier hitting record lows of around TL4.19.

US Treasuries were in demand. The yield on US 10-year Treasuries was down 3 basis points to 2.77 per cent while that on the equivalent maturity German Bund was 2bp lower at 0.49 per cent.

Commodities

Oil prices extended gains after touching their highest levels in more than three years as geopolitical concerns in the Middle East flared. Brent crude, the international benchmark, was up 2.4 per cent at $72.94 a barrel, the highest since late 2014. West Texas Intermediate, the US marker, was 2.5 per cent higher at $67.13.

The price of gold was up $19, or 1.5 per cent, at $1,358 an ounce

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