Concerns About Escalation in the Middle East Rise, According to Reuters

A look at the day ahead in European and global markets reveals that escalating conflicts in the Middle East have captured the attention of traders and investors across Asia. Concerns about the potential for a broader conflict remain prevalent.

Gold prices are climbing closer to their record highs, while bonds and the safe-haven dollar are seeing increased demand. However, some markets, particularly in Hong Kong, are looking beyond these risks. The benchmark stock index in Hong Kong surged over 4% as enthusiasm from China’s recent stimulus announcements continues to energize the market. This momentum could have been even stronger if the mainland Chinese markets had not been closed for the Golden Week holiday.

Risk-sensitive currencies, including the Australian and New Zealand dollars, are experiencing a rebound, benefiting from their close ties to China’s economy—its primary trading partner.

European stock futures suggest a positive market opening. Iran has announced the conclusion of its attacks, contingent on no further provocations, following a launch of approximately 180 ballistic missiles. In response, Israel, with the full backing of the United States, has promised to retaliate.

During the European trading session, there will be minimal distractions from Middle Eastern developments, as there is a lack of significant macroeconomic data or scheduled corporate announcements. However, discussions between UK Prime Minister Keir Starmer and European Commission President Ursula von der Leyen in Brussels could potentially reshape the relationship between the UK and the EU, with both parties expressing interest in a “reset.”

Wednesday’s agenda includes several speakers from the European Central Bank (ECB), such as Vice President Luis de Guindos and Chief Economist Philip Lane. A quarter-point rate cut appears highly likely this month, following a series of subdued inflation readings and signals from ECB President Christine Lagarde.

In the U.S., monetary policy is poised to be a focal point, especially ahead of the release of monthly payroll figures on Friday, which may determine whether policymakers will implement a 25- or 50-basis-point rate reduction next month. The private-sector ADP employment report set to be released later today will also offer insights.

If the situation in the Middle East stabilizes, the U.S. trading day promises to be eventful. However, a quick resolution to the ongoing dockworkers’ strike, which is affecting half of the country’s shipments—including significant losses in sectors such as automotive and agriculture—does not seem imminent, with no active negotiations reported overnight. The strike could be costing the economy as much as $5 billion daily.

Key developments to watch for on Wednesday include:

– Eurozone unemployment rate for August
– ECB speakers, including De Guindos and Lane
– Talks between European Commission President von der Leyen and UK PM Starmer
– U.S. ADP employment data for September