North American Morning Briefing: Stock Futures Slip as Middle East Tensions Rise

OPENING CALL

Stock futures were lower on Wednesday as the prospect of a widening Middle East conflict weighed, while oil prices extended gains, boosting Occidental Petroleum and ConocoPhillips premarket.

Investors are bracing for Israel's reaction to Iran's missile attacks.

A hawkish retaliation risks trigger a new spiral of escalation, but the U.S. is hoping for a more measured response, similar to when Iran attacked in April.

Traders will no doubt be keeping an eye on OPEC+'s Joint Ministerial Monitoring Committee meeting later for clues on the group's next policy move, especially after Saudi's Oil Minister called out members for overproducing, seen as a veiled threat of a price war .

In European trading, energy companies, including BP, also climbed, defense stocks rose, and airlines dipped. Asian markets were mostly lower. Mainland Chinese markets were closed for a holiday.

More Premarket Movers

Lamb Weston posted fiscal first-quarter profit down 46% from a year earlier, and announced a restructuring plan. Shares declined 4.5%.

LPL Financial fired Chief Executive and President Dan Arnold for making statements to employees that violated the company's code of conduct. Stock fell 2.9%.

Nike was down 5.7% after it said it was withdrawing guidance for fiscal 2025 and postponing its first investor day in seven years to give recently appointed CEO Elliott Hill time to evaluate the company's strategies.

Tesla fell 1% ahead of the release its third-quarter deliveries.

Watch For:

ADP National Employment Report for September; EIA Weekly Petroleum Status Report; Earnings from Conagra Brands

Today's Headlines/Must Reads:

- Israeli Response to Iran's Attack to Set Course of Widening War

- Pay Rises for Cyber Chiefs as Hacks, Regulatory Pressure Increase

- JD Vance's Version of Trump Is Better Than the Real Thing

MARKET WRAPS

Forex:

The USD rebound is underway, boosted by tensions in the Middle East, OCBC said.

"Gold, bonds, and oil have reacted more while the equity, FX responses appear milder."

"It is probably prudent to monitor further if there is excessive complacency in markets," it said, cautioning that a widespread conflict involving more parties could fuel risk-aversion flows that would benefit the likes of the dollar, the Swiss franc, the yen and gold.

ING said geopolitical events should remain the main driver for the currency and domestic developments, including the vice-presidential candidate debate and data, have been overshadowed.

The euro might benefit if the French-German government bond spread remains contained next week when full details of the French budget are unveiled, MUFG Bank said.

French Prime Minister Michel Barnier on Tuesday provided initial details of plans to reduce the budget deficit, including spending cuts, which might be opposed by left parties but be more palatable for the right and the National Rally, the largest party in parliament.

The prospect of getting a plan approved have improved, as reflected by the modest narrowing of the French-German bond spread, it added.

"If the spread does remain contained through the budget process next week it will remove one near-term downside risk for the euro."

Bonds:

Credit spreads are expected to widen slightly according to UniCredit, "The escalation of geopolitical tensions in the Middle East will weigh on market sentiment today as investors finally started to react to rising tensions, while waiting for Israel's response."

Most economic data this week are unlikely to have much impact it added, saying it didn't expect strong market conviction towards wider spreads as long as the soft-landing narrative remained intact.

Energy:

Oil gained further on growing fears of a full-scale regional war in the Middle East.

"Significant escalation would likely involve targeting Iranian nuclear facilities and energy infrastructure, which would likely boost the risk premium priced into the oil market."

Meanwhile, traders will be closely watching OPEC+'s meeting later on Wednesday for more cues on the group's next policy move.

Metals:

Gold edged lower early, with some profit-taking, after rising in the previous session as fears of an all-out war in the Middle East drove safe-haven demand.

"Haven assets were in demand amid the rising tensions in the Middle East, " ANZ Research said.

"Even so, the outlook for real interest rates is what will drive gold prices over the longer term."

Steel inventories held by Chinese distributors are at a six-year low entering China's Golden Week holiday, a potentially bullish driver for prices, Citi said.

TODAY'S TOP HEADLINES

Oracle to Invest $6.5 Billion in AI and Cloud Infrastructure in Malaysia

Oracle Corp. plans to invest more than $6.5 billion to establish a public cloud region in Malaysia, aiming to meet the country's growing demand for artificial intelligence and cloud services.

The investment will allow Malaysian businesses to leverage AI infrastructure and services, and migrate mission-critical workloads to Oracle cloud infrastructure, the company said in a statement Wednesday.

A CVS Breakup Is No Easy Fix for Its Problems

In recent years, CVS Health has sought to transform itself from a retail pharmacy chain to a health conglomerate combining everything from the doctor to the insurer under one roof. It might still have a shot at building a health juggernaut, but perhaps without the well-known pharmacy that brought everything together.

CVS is considering a breakup and other strategic alternatives as pressure from investors builds on management in the midst of disappointing earnings results and a depressed stock. Over the past five years, its stock is basically unchanged, compared with a near doubling of the S&P 500. On Monday, the hedge fund Glenview Capital Management met with CVS to discuss ways to improve operations, The Wall Street Journal reported.

JPMorgan Plans to Open Around 100 New Branches in Low-Income Areas

Jamie Dimon has a plan to help some of the poorest people in America: build more Chase branches in their towns and cities.

JPMorgan Chase is working on opening nearly 100 new branches in low-income areas around the country, including America's inner cities and rural towns where banks have been shrinking their footprint for years.

Iran Attacks Israel. The Israeli Response Will Drive the Market.

Iran fired a barrage of missiles at Israel on Tuesday, prompting the price of oil to rise and stocks to fall. The attack did minimal damage, but employed roughly twice the number of ballistic missiles as a similar Iranian strike on Israel in April, according to the Pentagon.

Israeli Response to Iran's Attack to Set Course of Widening War

As Israel weighs how to respond to Tehran's latest missile barrage, it could take a page from its previous playbook when, after days of deliberation, its military targeted a single Iranian military site.

Few expect Israel's response to be as narrow this time, posing a fresh test as the Biden administration seeks to avoid a new spiral of escalation.

BOE Warns of Sharp Correction as Geopolitical Worries Mount

Financial markets remain vulnerable to a sharp correction, the Bank of England warned Wednesday as a twice-yearly survey found that geopolitical developments are seen as the greatest threat to stability.

The BOE's Financial Policy Committe has repeatedly warned that valuations of many financial assets, particularly equities, are "stretched" and could fall sharply in response to economic or geopolitical shocks.

Israel Assesses Damage from Iran's Missile Barrage

TEL AVIV-Israel was reviewing the damage Wednesday from roughly 180 missiles fired a day earlier by Iran, some of which hit the country's densely populated center and a few military bases, an aerial attack that has escalated a yearlong conflict in the Middle East.

Israel said its air defenses intercepted most of the missiles alongside a coalition of U.S.-led allies, including the U.K, but a number of projectiles successfully penetrated the country's vaunted aerial defense system.

Vance Seeks to Temper Trump's Policies, Walz Casts Former President as Dangerous

JD Vance sought to temper Donald Trump's more controversial rhetoric on issues like abortion, immigration and guns during a vice presidential debate Tuesday night, as an occasionally tense Tim Walz offered a defense of Kamala Harris's record and argued that Trump poses a danger to democracy.

On the campaign trail, the Republican senator from Ohio has developed a reputation as a partisan attack dog. But throughout the debate, he gave a more polished performance, playing down Trump's plans for mass deportations and saying the GOP needs to earn back the trust of Americans on abortion, tacitly acknowledging a massive gender gap Trump suffers. And he reminded viewers of his modest roots and that he was raised by "two lifelong blue-collar Democrats."

North Carolina in Crisis Mode as Helene Rescues Continue

As the death toll from Helene continued to rise, the city of Asheville in western North Carolina's Blue Ridge Mountains was picking up the pieces from the devastating storm.

Water systems were down Tuesday and would likely take weeks to repair, many roads in the city were washed away, and there was no word from some rural communities cut off by the floods.

Write to clare.kinloch@wsj.com

TODAY IN CANADA

Earnings:

Nothing major scheduled.

Economic Indicators (ET):

Nothing major sheduled.

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October 02, 2024 06:28 ET (10:28 GMT)

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