Market Analysis

Morning bid: Market Jitters Rise Amid Heightened Middle East Tensions

Amos Simanungkalit · 05 Apr380 Views

Rae Wee provides an outlook on the day ahead in European and worldwide markets.

European equities are off to a bumpy start on Friday, with futures pointing to the steepest daily percentage drop in months, fueled by growing tensions in the Middle East.

Israeli Prime Minister Benjamin Netanyahu's statement that the country will damage "whoever harms us or plans to harm us" fueled fears of a larger war. Israel is ready for a retaliatory attack following Monday's alleged Israeli air strike on Iran's embassy.

That took the gloss off Wall Street's amazing late-fall run on Thursday, which left Asian stocks in the red and sent oil prices soaring.

Europe is unlikely to be spared either, with the EURO STOXX 50 index futures down more than 1.5% - a significant move for Asian time.

Britain's FTSE futures also plummeted by more than 1.4%.

The possibility of a prolonged Israel-Hamas war, which was previously eclipsed by the worldwide rate cut euphoria, has returned to the forefront. That is proving to be a wild card for central bankers, as markets reevaluate their expectations for Federal Reserve rate reduction this year.

Minneapolis Fed President Neel Kashkari, a noted hawk, went so far as to indicate that rate reduction may not be required this year if inflationary pressures continue to decline.

Brent futures above $90 per barrel are unlikely to strengthen the case for relaxing.

All of this comes ahead of a major US employment data arriving later on Friday that could make or break the argument for the Fed's first rate decrease in June, which appears to have devolved into a cat-and-mouse game.

Surprise growth in U.S. manufacturing at the start of the week helped boost the dollar to an almost four-month high as traders reduced bets on an immediate Fed easing cycle, only to reverse course after a dismal U.S. services sector survey issued days later.

Nonfarm payrolls are expected to have expanded by 200,000 jobs in March, with first evidence that labor market conditions in the world's largest economy are easing, albeit at a slow pace.