Middle East conflict drives up oil prices
Bank balance sheets make Wall Street nervous
April 12, 2024, 10:48 p.m
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Disappointing quarterly reports from major US banks are making investors on Wall Street nervous. The Middle East conflict is also having a huge impact on the mood. There are no new signals in the interest rate debate that could create a buying mood.
Wall Street closed very weakly at the end of the week with increased geopolitical risks. International politicians had warned urgently about the consequences of a possible direct confrontation between Iran and Israel. US President Joe Biden made it clear that the US would stand by Israel. Geopolitical tensions caused investors to reduce their risk before the weekend.
“That would have a big impact on the energy sector, but in recent weeks there have been similar headlines on Friday that never amounted to anything,” market strategist Paul Hickey of Bespoke Investment Group tried to calm the market’s worries somewhat. Oil prices rose with the headlines, but came back significantly from daily highs. He lost on the stock market Dow Jones Index 1.2 percent to 37,983 points, S&P 500 and Nasdaq Composite lost 1.5 and 1.6 percent respectively. There were 435 (Thursday: 1,448) price winners and 2,407 (1,379) losers on the Nyse. 39 (68) titles closed unchanged.
However, the current reporting season also produced initial disappointments, with JP Morgan and Citi trading at significant discounts following their quarterly reports. There were no new findings in the interest rate debate that has dominated the market for days: on the one hand, higher than expected import prices spoke against interest rate cuts, on the other hand, the weak mood of US consumers spoke in favor of them. The consumer sentiment index calculated at the University of Michigan fell, while economists had forecast a slight increase.
Dollar gains significantly
At the Bond market Yields have now fallen significantly after their recent high. The geopolitical risks caused investors to head for the supposedly safe bond haven. Weak consumer confidence also supported bond prices, albeit only moderately.
At the Foreign exchange market the dollar was very strong. The dollar index rose by 0.7 percent. The greenback also benefited from its reputation as a supposed safe haven. The high import prices also provided support. The euro significantly increased its losses over the course of the year, reaching its lowest levels since November 2023. The interest rate difference spoke in favor of the greenback. For 10-year US government bonds and corresponding federal bonds, this was at the highest level since 2019. The probability that the ECB will enter the interest rate cutting cycle before the Fed is high, said foreign exchange analyst Kit Juckes from Societe Generale.
The Oil prices initially rose sharply. Market participants pointed to the ongoing geopolitical tensions in the Middle East, especially concerns about a possible direct attack by Iran on Israel. This would mean a significant escalation of the conflict with implications for oil supplies. The strong dollar slowed price increases somewhat in late trading.
Bank stocks very weak based on figures
JP Morgan Chase earned 6 percent more in the first quarter. Revenue rose 9 percent, slightly more than analysts expected. However, the US bank warned that higher interest rates were starting to hurt its business and forecast subdued growth for the rest of the year. The share fell by 6.5 percent. The Citigroup (-1.7%) saw a drop in profits in the first quarter. Profits fell by 27 percent due, among other things, to the costs of converting the institute. Revenue fell by 2 percent.
Wells Fargo (-0.4%) earned less in the first period than in the same period last year, but exceeded market expectations. Blackrock earned more than expected in the first quarter and significantly increased assets under management. The asset manager’s price was unable to escape the weak market trend and was 2.9 percent lower.
In the semiconductor sector there were Intel and AMD 5.2 and 4.2 percent respectively. According to a report in the Wall Street Journal, Chinese telecommunications companies will no longer use chips from abroad in the foreseeable future on government orders. However, the headlines were not entirely new. Arista Networks fell by 8.6 percent, Rosenblatt had downgraded the network engineer’s shares to “sell”. Lockheed Martin lost only 0.4 percent. The company was awarded a missile defense contract in the United States worth up to $4.1 billion.