U.S. stocks extended declines Wednesday while safe-haven flows propped up the dollar even amidst an ongoing sell-off in Treasury bonds, as investors grappled with the dangerously escalating conflict between Israel and Hamas and indications that inflation pressures could trigger further Fed rate hikes.
The bombing of a hospital late Tuesday in Gaza, which killed as many as 200 people, according to Hamas government estimates, has accelerated the already deadly conflict with Israel and clouded the arrival of President Joe Biden in Tel Aviv.
Israel claims the bombing was the result of a malfunctioning Hamas rocket, while officials in Gaza insist it was a targeted effort on the part of the Israeli Defense Force.
"Based on what I've seen, it appears as though it was done by the other team, not you," Biden said during a press briefing with Israeli Prime Minister Benjamin Netanyahu. "But there's a lot of people out there not sure, so we’ve got a lot — we’ve got to overcome a lot of things."
Investors responded to the change in tone from the atrocity, which threatens to engulf the regional in a protracted military conflict, by sharply bidding-up the price of oil and moving cash into the safety of the U.S. dollar.
The dollar index, which tracks the greenback against a basket of early New York trading while Brent crude prices for December delivery, the world benchmark, rose $1.46 to $91.34 per barrel.
Data from the U.S. yesterday showing stronger-than-expected gains in retail sales, as well as solid September industrial production figures, added to the market's broader concerns over a renewed inflation spike. Those concerns were exacerbated by the upward revisions to the Atlanta Fed's GDPNow forecasting tool, which now shows current-quarter grow accelerating to an annualized gain of 5.4%.
Benchmark 2-year note yields rose 5 basis points to a fresh 2006 highs of 5.235% in early New York trading, while 10-year notes traded at 4.921%, the highest since 2007, following a 10 basis point gain over the whole of the Tuesday session.
The CME Group's FedWatch, meanwhile, suggests a near 50% chance of a quarter point rate hike in January, with the odds of a move prior in December pegged at 43%. Traders, however, fully expect the Fed to hold rates steady at between 5.25% and 5.5% at next month's policy meeting in Washington.
Heading into the opening hour of trading on Wall Street, with investors eyeing another busy round of corporate earnings, including Netflix (NFLX) -) and Tesla (TSLA) -) after the close, the S&P 500 was marked 29 points, or 0.67% to the downside.
The Dow Jones Industrial Average, meanwhile, fell 153 points while the tech-focused Nasdaq was down 95 points, or 0.7%.
In overseas markets, Europe's Stoxx 600 benchmark slipped 0.43% lower in mid-day Frankfurt trading, with a 0.7% decline for the FTSE 100 in London, as investors tracked U.S. futures in a cautious overall market.
Overnight in Asia, a stronger-than-expected reading for third quarter GDP in China, which advanced at an annualized rate of 4.9%, supported regional socks, although the MSCI ex-Japan index fell 0.36% into the close of trading amid the downbeat mood in global markets.
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