Escalating Middle East Tensions May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see further downside following the steep drop seen on Tuesday.

Concerns about escalating tensions in the Middle East may continue to weigh on Wall Street following Iran’s ballistic missile attack against Israel on Tuesday.

While Iran has said it is not interested in a wider war, the attacks have contributed to a surge by the price of crude oil, leading to worries higher energy prices will lead to a resurgence in inflation.

Waning optimism the Federal Reserve will continue to aggressively lower interest rates may also generate selling pressure after payroll processor ADP released a report showing stronger than expected private sector job growth in the month of September.

ADP said private sector employment climbed by 143,000 jobs in September after rising by an upwardly revised 103,000 jobs in August.

Economists had expected private sector employment to advance by 120,000 jobs compared to the addition of 99,000 jobs originally reported for the previous month.

On Friday, the Labor Department is due to release its more closely watched report on employment in the month of September.

Economists currently expect the report to show employment rose by 140,000 jobs in September after climbing by 142,000 jobs in August, while the unemployment rate is expected to hold at 4.2 percent.

After moving sharply lower early in the session, stocks regained some ground over the course of the trading day on Tuesday but remained firmly negative. The major averages all moved to the downside on the day, with the tech-heavy Nasdaq leading the way lower.

The Nasdaq tumbled 278.81 points or 1.5 percent to 17,910.36, the S&P 500 slumped 53.73 points or 0.9 percent to 5,708.75 and the Dow fell 173.18 points or 0.4 percent to 42,156.97.

With the decreases on the day, the Dow and the S&P 500 pulled back off the record closing highs set in Monday’s session.

The weakness on Wall Street came amid escalating tensions in the Middle East after Iran launched a ballistic missile attack against Israel.

Iran’s Islamic Revolutionary Guard Corps said the attack was in response to the killing of Hezbollah leader Hassan Nasrallah and others in recent Israeli airstrikes.

The attack also came after Israel launched ground operations against the Iranian-backed militia group Hezbollah in southern Lebanon.

Israel Defense Forces spokesperson Rear Admiral Daniel Hagari warned the attack by Iran “will have consequences.”

A senior White House official said earlier in the day that the U.S. had indications Iran was preparing to imminently launch a ballistic missile attack against Israel, contributing to the early sell-off by stocks.

“We are actively supporting defensive preparations to defend Israel against this attack. A direct military attack from Iran against Israel will carry severe consequences for Iran,” the official said in a statement.

Selling pressure waned following the actual attack, however, as traders expressed optimism cooler heads will prevail, avoiding a broader regional conflict.

The news from the Middle East largely overshadowed separate report showing a continued contraction by U.S. manufacturing activity in September and an unexpected increase by U.S. job openings in August.

Concerns about the economic impact of a strike by dockworkers at seaports across the U.S. East and Gulf Coasts also weighed on Wall Street.

Around 45,000 dockworkers went on strike after the United States Maritime Alliance and the International Longshoremen’s Association failed to reach a settlement on a new Master Contract.

Semiconductor stocks showed a substantial move to the downside, dragging the Philadelphia Semiconductor Index down by 2.9 percent.

Considerable weakness was also visible among computer hardware stocks, as reflected by the 2.6 percent plunge by the NYSE Arca Computer Hardware Index.

Banking stocks also saw significant weakness on the day, resulting in a 1.9 percent slump by the KBW Bank Index.

Software, airline and telecom stocks also saw notable weakness, while energy stocks moved sharply higher along with the price of crude oil.

Commodity, Currency Markets

Crude oil futures are surging $2.04 to $71.87 a barrel after jumping $1.66 to $69.83 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,666.60, down $23.70 compared to the previous session’s close of $2,690.30. On Tuesday, gold spiked $30.90.

On the currency front, the U.S. dollar is trading at 145.27 yen compared to the 143.57 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1055 compared to yesterday’s $1.1068.

Asia

Asian stocks ended mostly lower on Wednesday, even as Hong Kong shares continued to surge on stimulus euphoria. A cautious undertone prevailed following Tehran’s sharp but brief strike in reprisal for Israel’s attacks on Lebanon in recent days.

The dollar rose on safe-haven demand, sending gold prices lower in Asian trading. Oil extended an overnight rally amid worries that Middle East tensions could escalate and potentially disrupt crude output from the region.

Markets in mainland China remained closed for Golden Week holidays.

Hong Kong’s Hang Seng index surged 6.2 percent to 22,443.73 as trading resumed after a holiday on Tuesday. Real estate and tech stocks outperformed sparked by Beijing’s recent slew of stimulus.

Japanese markets slumped due to apprehensions over the BoJ’s policy outlook. The Nikkei 225 Index plunged 2.2 percent to reach an over one-week closing low of 37,808.76, while the broader Topix Index settled 1.4 percent lower at 2,651.96.

Technology stocks followed their U.S. peers lower after a nearly 3 percent drop by the Philadelphia Semiconductor Index overnight. Advantest lost 4.9 percent, Screen Holdings shed 3.8 percent and Tokyo Electron gave up 3.7 percent.

AI-focused startup investor SoftBank Group declined 2.4 percent and Uniqlo parent firm Fast Retailing fell 4 percent.

South Korea’s Kospi tumbled 1.2 percent to 2,561.69 as tensions escalated in the Middle East.

Data showed South Korean inflation cooled more than expected to a 43-month low in September, bolstering the case for a pivot to monetary easing by the central bank when it sets policy next week.

Samsung Electronics shares dropped below 60,000 won for the first time in 18 months before recouping most losses to close 0.3 percent lower at 61,300 won.

Korea Zinc shares rallied 3.6 percent after a South Korean court ruled that the company can buy back its own shares during a public tender offer by Young Poong and private equity firm MBK Partners.

Australian markets ended slightly lower despite strong gains in the energy sector, with Woodside Energy and Santos climbing 2-3 percent.

The benchmark S&P/ASX 200 slipped 0.1 percent to 8,198.20, while the broader All Ordinaries Index ended down 0.1 percent at 8,469.90.

Auric Mining plunged 12.7 percent after an announcement that its second gold milling campaign from the Jeffreys Find Gold Mine in Western Australia generated $23.5 million in sales.

Qantas fell 2.7 percent after the airline announced plans to buy a 25 percent stake in Virgin Australia from a U.S. private equity firm.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index closed 0.1 percent lower at 12,451.69.

Europe

European stocks are turning in a mixed performance on Wednesday, with energy stocks surging as oil extended an overnight rally on concerns that Middle East tensions could escalate and potentially disrupt crude output from the region.

In economic news, the Eurozone’s unemployment rate came in unchanged at 6.4 percent in August, matching expectations.

While the U.K.’s FTSE 100 Index is up by 0.1 percent, the French CAC 40 Index is down by 0.1 percent and the German DAX Index is down by 0.6 percent.

TotalEnergies has rallied in Paris. The company has announced the final investment decision for the GranMorgu development located on offshore Block 58 in the Republic of Suriname with total investment of around $10.5 billion.

GEA Group shares have also jumped. The German technology supplier for food processing and a wide range of other industries on its capital markets day said it achieved its mid-term financial goals of Mission 26 growth strategy ahead of 2 years.

Skanska AB has also risen. The construction company has secured a supplemental award with an existing client to build additional data halls at a data center in Georgia, USA.

Meanwhile, JD Sports has slumped despite the British sportswear retail chain reporting record sales in the 26 weeks to August and reaffirming its FY25 guidance.

Wizz Air Holdings has also moved sharply lower after the airline reported a drop in load factors over the course of September.

Telia has also fallen. The Swedish telecommunications operator has announced the appointment of Alexandra Furst as its Chief Technology and Information Officer (CTIO).

U.S. Economic Reports

Private sector employment in the U.S. increased by more than expected in the month of September, according to a report released by payroll processor ADP on Wednesday.

ADP said private sector employment climbed by 143,000 jobs in September after rising by an upwardly revised 103,000 jobs in August.

Economists had expected private sector employment to advance by 120,000 jobs compared to the addition of 99,000 jobs originally reported for the previous month.

Job creation saw a widespread rebound after a five-month slowdown, with only the information sector losing jobs, ADP said.

Cleveland Federal Reserve President Beth Hammack is scheduled to give welcome remarks before the 2024 Minorities in Banking Forum at 9 am ET.

At 10:05 am ET, St. Louis Federal Reserve President Alberto Musalem is due to give welcome remarks before the 2024 Community Banking Research Conference.

The Energy Information Administration is scheduled to release its report on crude oil inventories in the week ended September 27th at 10:30 am ET.

Crude oil inventories are expected to decrease by 2.1 million barrels after tumbling by 4.5 million barrels in the previous week.

At 11 am ET, Federal Reserve Board Governor Michelle Bowman is due to give the keynote speech before the 2024 Community Banking Research Conference.

Richmond Federal Reserve President Thomas Barkin is scheduled to speak on the national economic outlook before the 2024 WilmingtonBiz Conference and Expo at 12:15 pm ET.