United States
US equity markets fell as Iran launched missiles into Israel in an escalation of the current conflict in the region. The Dow Jones Industrial Average dropped 0.41%, losing 173 points to close at 42,156.97. The S&P 500 fell 0.93%, down 53 points to 5,708.75. The Nasdaq experienced the steepest decline, sliding 1.53%, or 278.81 points, to finish at 17,910.36. Eight of the S&P 500’s 11 sectors closed lower, with technology stocks suffering the largest losses, while the energy sector was the standout performer as oil prices surged due to the Middle East tensions.
In the technology sector, Apple declined 2.91% to $226.21 on renewed concerns over iPhone sales volumes. Tesla also slid 1.38% to $258.02, a decrease of $3.61. Nvidia dropped 3.66% to $117, down $4.44. A strike at U.S. East Coast and Gulf ports, which has halted around half of the nation’s shipping, could disrupt supply chains for these tech companies. Conversely, Meta managed to gain 0.70%, closing at $576.47, after hitting an all-time high earlier in the day at $583.04.
Defense stocks saw gains, with Lockheed Martin rallying 3.6% and Northrop Grumman rising 2.99%. Oil companies also benefited from the geopolitical developments, with ExxonMobil up 2.31% to $119.93, adding $2.71, and Chevron gaining 1.6%. The heightened investor anxiety surrounding a potential conflict escalation drove the VIX volatility index up by 2.53 percentage points to 19.26.
In economic data, the JOLTS labour market report showed an unexpected increase in job openings for August. This rise is consistent with a slowing labour market but not one that is collapsing. The rise in job openings came after 2 months of declines. Meanwhile, the PMI data for manufacturing held steady at 47.2, signalling a contraction in the sector as readings below 50 suggest a slowdown. Investors are now awaiting the ADP employment report on Thursday and, more importantly, the national non-farm payroll report on Friday, which will be a key indicator.
U.S. bond yields fell as investors sought safer assets, with the 10-year Treasury yield dropping 5 basis points to 3.73% and the 2-year yield down 3.5 basis points to 3.605%. The U.S. dollar strengthened, with the Dollar Index rising 0.45% to reach 101.20.
Europe
European shares declined on Tuesday, with the Euro Stoxx 600 dropping 0.38% to close at 520.88, down by 2.01 points. The market had traded higher earlier in the session but reversed course following reports of a potential attack on Israel by Iran. Trading ended before the attack was confirmed. Six of the 11 sectors finished higher, led by gains in the energy and real estate sectors. Banks, however, posted the largest losses, with the financial sector closing down 1.35%. Both the French and German indices declined, with the CAC 40 falling 61.68 points to 7,574.07, a 0.81% drop, and the DAX down 111 points, closing at 19,213.14, a 0.58% decline.
Eurozone inflation was reported at 1.8% year-on-year, below the ECB’s 2% target. While this decline was widely anticipated, it is expected to pave the way for potential interest rate cuts, as suggested by ECB President Christine Lagarde earlier in the week. Rate-sensitive sectors like real estate and utilities moved higher in response. Energy companies also rose due to increased oil prices, and defence contractors gained amid geopolitical concerns. Germany’s Rheinmetall, a defense materials supplier, was up 5.06%, while Sweden’s Saab climbed 3.54%.
In the UK, the FTSE 100 gained 39.7 points to close at 8,276.65, up 0.48%. The index was buoyed by strong performances in the oil sector, with BP rising 2.37% and Shell advancing 2.18%. Gold and defense stocks also saw gains as investors rotated into sectors perceived to benefit from the conflict. Conversely, the luxury goods sector saw declines following analyst downgrades on earnings expectations.
Elsewhere, manufacturing activity in France, Italy, and the UK showed further declines. British retailers reported continued price drops in shops. German bond yields fell sharply on the day due to improved inflation data and a flight to safety. The 10-year Bund yield dropped 9 basis points to close at 2.03%, while the 2-year Bund yield was down 4.5 basis points to 2.01%. In the UK, 10-year gilt yields fell by 6 basis points to 3.94%, and the 2-year yield declined by 2.5 basis points to 3.95%. Both the British pound and the euro weakened as investors shifted to the US dollar amid a similar flight to safety, with GBP/USD at 1.328 and EUR/USD at 1.1067.
Australia
The ASX200 is expected to be unchanged on the open today with an overnight move higher of 2 points. The AUDUSD slipped from its close on Tuesday dropping to 0.6884 as traders moved to the US dollar against other currencies
The Australian share market declined on Tuesday, dropping 0.74%, or 60.9 points, to close at 8,208.9. The downturn was primarily driven by the mining and banking sectors, with the materials sector falling 2.29% and the financial sector down 1.19%. However, six out of the eleven sectors ended higher, with healthcare leading the gains.
Miners took a pause from their recent rally, with BHP losing $1.32, or 2.87%, to close at $44.64. Fortescue dropped 3.48%, or 72 cents, to finish at $19.96. Iron ore prices edged down slightly, closing at US$108.30 per tonne in Sydney. The recent sharp gains in mining stocks have been partially attributed to short covering, especially among lithium producers. Today, shares of these companies also pulled back, with Mineral Resources declining 43 cents to $51.61, a fall of 0.83%, and Arcadium Lithium down 3.54%, or 15 cents, to $4.09.
Banks remained under pressure, with Commonwealth Bank of Australia (CBA) dropping 1.51%, or $2.05, to end at $133.40. The other major banks fell between 1% and 1.5%, except for NAB, which announced job cuts as part of a restructuring of its markets and corporate finance divisions. Meanwhile, housing data released today showed a 0.5% increase in home values over the last quarter, though analysts forecast a decline as auction clearance rates continue to weaken.
The Healthcare sector outperformed, with Cochlear gaining 3.31%, or $9.33, to close at $291.42 on higher-than-average trading volume. Sigma Healthcare surged 22.57%, rising 32.5 cents to $1.765 after the ACCC stated it would seek feedback on a proposed court-enforceable undertaking related to Sigma’s acquisition of Chemist Warehouse. Additionally, REA Group shares climbed 4.88%, or $9.80, to $210.80 after the company announced it was withdrawing its bid for Rightmove PLC.
In the broader region, Chinese shares soared 8.48%, reaching levels not seen since July 2023. The Nikkei also rebounded, gaining 1.93% on the back of a weaker yen. On the economic front, Australian retail sales grew by 0.7% for the month, beating expectations of 0.4% growth.
Bond yields edged higher, with the 2-year yield up 2.5 basis points to 3.61% and the 10-year yield rising 1 basis point to 4.00%. The Australian dollar remained steady, trading at 0.6908 against the USD at the Sydney close.
Commodities
Oil prices rose after Iran launched missiles at Israel in response to Israel’s incursion into southern Lebanon. West Texas Intermediate crude climbed 2.89%, gaining US$1.99 to reach US$71.05, while Brent crude increased by 3.03% to US$73.87, adding US$2.16. Prices had initially surged by as much as 5.5% following reports of the attacks before easing slightly. The escalation has heightened concerns about a broader conflict in the Middle East and its potential impact on oil production.
Iron ore had a quieter session yesterday, edging slightly lower from Monday’s highs. It closed the New York session at US$108.60, up 56 cents from its close in Asian trading on Tuesday, representing a 0.51% gain. Copper advanced by US$150, closing at US$9,979, a 1.5% increase as traders factored in expectations of increased economic activity in China following recent stimulus measures.
Gold rose by 0.92% as the attack on Israel triggered a flight to safe-haven assets. The price climbed by US$23.98 to close at US$2,658.61 per ounce. Silver added 0.59% to finish at US$31.34 per ounce. Meanwhile, Bitcoin fell by US$2,156, settling at US$61,618, down 3.3% as risk assets faced a broad sell-off.
Economic Calendar
EU:
- Unemployment ratee (Aug) – 7:00pm
US:
- ADP Employment report (Sep) – 10:15pm
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
