Middle East tensions weigh on financial markets; Nokia to cut 14,000 jobs – business live
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Introduction: Global markets anxious about Middle East and inflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The financial markets remain gripped by anxiety over rising tensions in the Middle East, and concerns that the Israel-Hamas war could drive up oil prices, fuelling inflation.
Markets across the Asia-Pacific region are in the red today, with Japan’s Nikkei losing 1.85%, and China’s CSI 300 down 1.9%. That follows a sell-off yesterday in Europe, and then losses on Wall Street.
Gold hit its highest level since 1 August yesterday, touching $1,962 per ounce, as investors favoured traditional safe-haven assets.
Oil jumped too, with Brent crude hitting $93 per barrel on Wednesday, before slipping back to $91 this morning.
Investors have also been driving down the price of government bonds.
This pushed the yield, or interest rate, on 10-year US government bonds to their highest since 2007, early in the financial crisis.
Meanwhile, the US treasury yields continue to move up. The 10-year yield is at a 16-year high of 4.91% while the 30-year yield crossed 5% for the first time since 2006👀 pic.twitter.com/jqQ20C4nH2
— Diversitas (@Diversitas_LTD) October 19, 2023
Global investors are focused on the Middle East, where US president Joe Biden yesterday met with Israeli PM Benjamin Netanyahu – who has pledged to allow aid into Gaza via Egypt.
But Biden’s meetings with leaders from the Arab world were cancelled, following the explosion at Gaza’s al-Ahli Arab hospital
Risky assets face the double risks of higher real yields and increasing geopolitical tensions, says Mohit Kumar, chief economist for Europe at investment bank Jefferies.
He told clients:
Geopolitical risks moved up a notch [yesterday] as Biden’s peace visit was snubbed by a number of Arab countries. Peace efforts are ongoing with the UK’s PM expected to make a visit to the region.
Rating agency Standard & Poor’s fears that the crisis could create a new inflationary shock, and hurt global growth, if it escalates.
In a new report they warned:
“Even in the absence of a material energy supply shock, the evident sensitivity in energy prices to recent events indicates that some inflationary pressures could persist through the northern hemisphere winter.”
The agenda
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8.30am BST: Bank of Indonesia sets interest rates
-
1.30pm BST: US weekly jobless claims
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5pm BST: Federal Reserve chair Jerome Powell speaks at the Economic Club of New York
Key events
Shares in Nokia have dropped by 1.4% in early trading, after it announced a drop in sales in the last quarter and a cost-cutting plan.
This has helped to drag the Finland’s benchmark share index, the OMX Helsinki 25, down by 0.9% to a three-year low this morning.
France’s CAC 40 share index has hit a seven-month low in early trading, down 0.9%, Reuters reports, as a risk-off mood sweeps European markets.
FTSE 100 drops, dragged down by Rentokil and Rightmove
Britain’s stock market is open…. and shares are falling.
The FTSE 100 index of blue-chip shares has shed 77 points, or 1%, to hit 7512 points – the lowest in over a week.
Every sector is in the red, led by Industrial stocks, Technology and Financials.
Pest control firm Rentokil are down 13%, after warning of softer demand from consumers in North America.
Rentokil says revenues at its US products wholesale distribution business fell by 2.5% in the quarter, reflecting “lower demand for chemical products for use in pest control and in turf and ornamental end markets”.
Online property portal Rightmove have also fallen by 13%, after its smaller rival OnTheMarket agreed to be bought by CoStar Group, a $33bn New York-listed property giant (announcement here).
Exclusive: OnTheMarket, the London-listed agent-backed property portal, has agreed to be bought by CoStar, the giant American real estate group, for about £100m in a deal that will give it the firepower to take on bigger rivals Rightmove and Zoopla. https://t.co/Yux8T4jaBC
— Mark Kleinman (@MarkKleinmanSky) October 18, 2023
US 10-year Treasury yields nearing 5%
The rise in US government bond yields is causing anxiety in the markets, reports Kyle Rodda of Capital.com.
The yield (or interest rate) on 10-year Treasuries is nearing 5%, for the first time in 16 years. This indicates investors are concerned that inflation will remain higher for longer than hoped, prompting central banks to keep monetary policy tight.
Rodda says this increase (to 4.96% right now) is weighing on share prices, and financial conditions.
While the crisis in the Middle East is a source of significant uncertainty, a problem running at the markets like a freight train is the continued upward pressure on bond yields.
The causes of the move remain multi-faceted: resilient US growth, profound US deficits and subsequently onerous Treasury issuance, supply shocks stemming from the energy markets, and the Fed’s quantitative tightening. There’s debate about which factor reigns supreme as the primary driver of bond market dynamics.
Nevertheless, the inescapable reality US Treasuries are climbing towards 5% right across the curve, which is weighing heavily on equity market valuations and future global financial conditions.
Nokia to cut up to 14,000 jobs as sales fall
There’s bad news from the telecoms sector this morning – Nokia is planning to cut up to 14,000 jobs
The Finnish telecoms equipment maker is cutting its workforce in a new cost-cutting drive, following a drop in sales.
The drive will cut its workforce from 86,000 today, to between 72,000 and 77,000, as Nokia aims to cut its costs by up to €1.2bn over three years.
The news comes as Nokia also announced that sales fell by 20% in the last quarter, which it blames on “macroeconomic uncertainty and higher interest rates” which are hitting spending by mobile operators.
Nokia’s President and CEO Pekka Lundmark said:
“We continue to believe in the mid to long term attractiveness of our markets. Cloud Computing and AI revolutions will not materialize without significant investments in networks that have vastly improved capabilities.
However, while the timing of the market recovery is uncertain, we are not standing still but taking decisive action on three levels: strategic, operational and cost.
First, we are accelerating our strategy execution by giving business groups more operational autonomy. Second, we are streamlining our operating model by embedding sales teams into the business groups and third, we are resetting our cost-base to protect profitability. I believe these actions will make us stronger and deliver significant value for our shareholders.”
European stock markets are set for further losses today.
The futures market shows the UK’s FTSE 100 on track to fall 0.35% when trading begins at 8am.
Germany’s DAX futures are down almost 0.6%, as is the pan-European Eurostoxx 50.
Jim Reid, strategist at Deutsche Bank, says:
The market selloff gathered pace over the last 24 hours, as rising geopolitical risks and a fresh surge in long-term borrowing costs added to the downbeat mood.
The main drivers were investor fears about an escalation in the Middle East, which drove gold prices (+1.34%) to their highest since the end of July and meant the rebound in oil prices continued, with Brent Crude up a further +1.78% to $91.50/bbl.
But the negative sentiment was clear throughout global markets, and the 10yr Treasury yield (+8.1bps) closed at a new post-GFC [Global Financial crisis] high of 4.91%, and this morning is up a further +4.7bps to 4.96%, which leaves it within touching distance of 5% for the first time since July 2007
Introduction: Global markets anxious about Middle East and inflation
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The financial markets remain gripped by anxiety over rising tensions in the Middle East, and concerns that the Israel-Hamas war could drive up oil prices, fuelling inflation.
Markets across the Asia-Pacific region are in the red today, with Japan’s Nikkei losing 1.85%, and China’s CSI 300 down 1.9%. That follows a sell-off yesterday in Europe, and then losses on Wall Street.
Gold hit its highest level since 1 August yesterday, touching $1,962 per ounce, as investors favoured traditional safe-haven assets.
Oil jumped too, with Brent crude hitting $93 per barrel on Wednesday, before slipping back to $91 this morning.
Investors have also been driving down the price of government bonds.
This pushed the yield, or interest rate, on 10-year US government bonds to their highest since 2007, early in the financial crisis.
Meanwhile, the US treasury yields continue to move up. The 10-year yield is at a 16-year high of 4.91% while the 30-year yield crossed 5% for the first time since 2006👀 pic.twitter.com/jqQ20C4nH2
— Diversitas (@Diversitas_LTD) October 19, 2023
Global investors are focused on the Middle East, where US president Joe Biden yesterday met with Israeli PM Benjamin Netanyahu – who has pledged to allow aid into Gaza via Egypt.
But Biden’s meetings with leaders from the Arab world were cancelled, following the explosion at Gaza’s al-Ahli Arab hospital
Risky assets face the double risks of higher real yields and increasing geopolitical tensions, says Mohit Kumar, chief economist for Europe at investment bank Jefferies.
He told clients:
Geopolitical risks moved up a notch [yesterday] as Biden’s peace visit was snubbed by a number of Arab countries. Peace efforts are ongoing with the UK’s PM expected to make a visit to the region.
Rating agency Standard & Poor’s fears that the crisis could create a new inflationary shock, and hurt global growth, if it escalates.
In a new report they warned:
“Even in the absence of a material energy supply shock, the evident sensitivity in energy prices to recent events indicates that some inflationary pressures could persist through the northern hemisphere winter.”
The agenda
-
8.30am BST: Bank of Indonesia sets interest rates
-
1.30pm BST: US weekly jobless claims
-
5pm BST: Federal Reserve chair Jerome Powell speaks at the Economic Club of New York
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