US Stocks Slide Again – Nasdaq Drops 2.14% as Oil Surges
US equity markets finished sharply lower on Friday as investors continued to reduce exposure to technology stocks ahead of the key Q3 earnings season. The Nasdaq led the declines, falling 2.14% to close at 26,140, while the S&P 500 dropped 1.09% to finish at 7,659. The Dow Jones performed relatively better but still lost 0.34% to close at 52,002. Investors remain cautious heading into a busy period for corporate earnings, with concerns over elevated interest rates, persistent inflation and increasing geopolitical uncertainty continuing to weigh on market sentiment.
US Treasury yields were mixed across the curve as traders continued to digest last week’s stronger-than-expected inflation data and reassess the outlook for Federal Reserve monetary policy. The policy-sensitive 2-year Treasury yield declined 3.0 basis points to 4.708%, while the benchmark 10-year yield edged 1.5 basis points higher to finish at 5.073%. The divergence reflected ongoing uncertainty over the direction of US interest rates, with inflationary pressures and geopolitical developments remaining key considerations for investors.
The US dollar weakened against the major currencies, with the Dollar Index falling 0.22% to close at 101.78.
Oil markets experienced another strong rally on Friday as escalating tensions across the Middle East and a further deterioration in relations between the US and Ukraine added to concerns over global energy supplies. Brent crude surged 3.72% to close at $109.86 per barrel, while WTI jumped 3.51% to finish at $101.41.
Gold experienced a relatively subdued session compared with recent trading conditions, edging 0.13% lower to close at $4,165.01 an ounce. The precious metal continued to trade towards the upper end of its recent range, with the weaker US dollar providing some support.
Oil to Push Back to Annual Highs at $120
Oil markets are once again facing the prospect of a move back towards $120 a barrel as escalating geopolitical tensions threaten global energy supplies. With hostilities continuing across the Middle East and fresh concerns emerging over the deteriorating relationship between the US and Ukraine, traders are increasingly factoring a larger geopolitical risk premium into crude prices. Brent hit $110 a barrel on Friday, and traders fear that increased volatility this week could send it back to annual highs and beyond.
The Middle East remains the biggest concern for energy markets, with Houthi forces stepping up attacks on Saudi Arabian targets while Iranian strikes against commercial shipping in the Strait of Hormuz are continuing to increase.
The escalating tensions between Washington and Kyiv are also adding an unexpected layer of support to oil prices. Rather than weighing on the market, the deteriorating relationship is raising concerns over future sanctions, Russian energy flows and the potential for further disruption to global supply chains.
Brent hit $110 a barrel on Friday, and traders fear that increased volatility this week could send it back to annual highs and beyond. With geopolitical risks now dominating market sentiment, the prospect of Brent crude returning to $120 a barrel is becoming increasingly realistic, and it could happen within days rather than weeks.
For now, traders will remain highly sensitive to geopolitical headlines, with supply disruption fears likely to outweigh traditional demand fundamentals in the near term.
Busy Start to the Trading Week Today
Looking ahead, geopolitical developments are expected to remain a major focus for financial markets as the new trading week gets underway, particularly following the latest escalation in Middle East tensions. Oil prices are likely to remain volatile as traders assess the potential for further disruptions to global energy supplies.
The economic calendar also features several important releases, beginning with a major round of Chinese data during the Asian session. China’s GDP (exp. +4.4% q/y), Industrial Production (exp. +5.4% y/y) and Retail Sales figures (exp. +0.5% y/y) are all scheduled for release midway through the Asian trading day.
Attention will then turn to Canada in the New York session, where CPI inflation data (exp. +0.2% m/m, median +2.0% y/y and trimmed +1.9% y/y) is scheduled for release early in the day. The release will provide further insight into Canadian inflationary pressures and could have a significant impact on Bank of Canada interest rate expectations and the Canadian dollar.
With geopolitical risks remaining elevated, corporate earnings season gathering momentum and several important economic releases on the calendar, traders are expecting another potentially volatile start to the trading week.
