Stock index futures pointed to a lower open Wednesday with a risk-off bid following worries about a widening Mideast conflict.
S&P futures (SPX) -0.5%, Dow futures (INDU) -0.3% and Nasdaq 100 futures (NDX:IND) -0.6% are lower.
But bulls have overcome early geopolitical jitters in recent sessions.
“An explosion at a hospital in Gaza has subtly shifted financial markets’ response to the Israel-Hamas war,” UBS’ Paul Donovan said. “Initially markets gave little weight to the risk of a wider conflict. Since the explosion, the Palestinian, Egyptian, and Jordanian leaders have canceled meetings with US President Biden. While safe-haven flows still seem to be muted, the gold price is now back in the range seen over the summer, and oil prices have moved a little higher.”
See how commodities are trading.
Rates pulled back slightly. The 10-year Treasury yield (US10Y) was down 2 basis point to 4.82% after closing at the highest level since 2007 on Tuesday. The 2-year yield (US2Y) fell 4 basis points to 5.18%.
Positive economic data yesterday “meant that investors priced in a growing chance of another rate hike from the Fed,” Deutsche Bank’s Jim Reid said. “In fact, futures were pricing in a 59.5% chance of another hike by the close yesterday, which is the first time that’s been above 50% since October 3.”
“In addition, they moved to price out the chances of cuts in 2024, with the rate priced in by the December 2024 meeting up +11.9bps on the day to a new cycle high of 4.78%.”
The latest Fed Beige Book arrives this afternoon.
Before the bell, September housing starts and building permits numbers hit. The forecast is for starts to rise to an annual rate of 1.38M, with permits down to 1.455M.
“Monthly noise aside … the trend in housing starts is flattening following the summer rebound, thanks in large part to the recent renewed drop in mortgage demand to new cycle lows,” Pantheon Macro’s Ian Shepherdson said. The “recent plunge in the NAHB index of homebuilders’ sentiment, by 16 points between July and October, suggests that the latest drop in mortgage applications is dramatically tempering their enthusiasm.”
“This, in turn, suggests that the flattening in housing starts will continue into the fourth quarter and into early 2024.”
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