Markets weak as US and allies try to calm Middle East tensions

Traders are also watching reports that US will curb China's access to lucrative semiconductors market.

European stocks and US equity futures fluctuated while Treasuries dropped as traders tracked efforts by the US and its allies to prevent further escalation of the Israel-Hamas conflict.

Technology stocks led declines in Europe’s Stoxx 600 index after Bloomberg reported that the US is considering further restrictions to curb China’s access to advanced semiconductors. Polish stocks jumped the most since May 2022 and the zloty rallied as a bloc of pro-European opposition parties appeared on track to unseat the nationalist government.

“The zloty should continue to strengthen further in the near-term in anticipation of improving relations with the European Union that will help to support growth and attract capital inflows,” said Lee Hardman, senior currency analyst at MUFG Bank.

Markets steadied slightly after last week’s rush into haven assets, as traders await further developments in the Middle East. S&P 500 contracts and those for the Nasdaq 100 were steady. Treasury 10-year yields rose more than six basis points after dropping 19 basis points last week. Gold declined more than 1%.

Oil prices traded in a narrow range as US officials rushed to speak with Middle Eastern nations — including back-channel talks with Iran — to contain the conflict. A sharper escalation could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the EU have designated a terrorist group.

A gauge of Asian shares slipped as stocks dropped in mainland China despite the central bank making the biggest medium-term liquidity injection since 2020.

Headwinds in China’s markets are growing. The US has moved to tighten curbs on advanced chip technology and concerns continue about the mainland property sector. The People’s Bank of China injected a net 289 billion yuan ($39.6 billion) via a medium-term lending facility on Monday and kept the policy rate unchanged at 2.5%.

The US said it will tighten sweeping measures that restrict China’s access to advanced semi-conductors and chip-making gear in a bid to prevent its geopolitical rival from getting a military edge.

Elsewhere in currencies, a gauge of dollar strength edged lower, while New Zealand’s dollar led gains among major peers after the country elected a center-right government on Saturday.

Traders are also keeping a close eye on the latest economic data and parsing comments from central bank officials for clues on the policy outlook. Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data, despite a lift in US consumers’ year-ahead inflation expectations in early October.

Key updates on the state of the global economy due this week include Chinese growth figures, inflation readings in Japan, the UK and the euro zone. Meanwhile, Fed chairman Jerome Powell is set to speak later this week following a string of stronger-than-expected data readings.

Key events this week:

Russian Foreign Minister Sergei Lavrov visits China, Monday
US Treasury Secretary Janet Yellen meets with euro-area finance ministers in Luxembourg, Monday
European Central Bank governing council member François Villeroy de Galhau speaks, Monday
Bank of England chief economist Huw Pill speaks, Monday
US Empire Manufacturing index, Monday
Philadelphia Fed President Patrick Harker speaks, Monday
Chinese President Xi Jinping hosts world leaders at the Belt and Road Initiative forum in Beijing, with Russian President Vladimir Putin expected to attend, Tuesday
Germany ZEW survey expectations, Tuesday
UK jobless claims, unemployment, Tuesday
Joint European Central Bank/IMF policy and research conference, Tuesday
US retail sales, business inventories, industrial production, cross-border investment, Tuesday
Goldman Sachs, Bank of America earnings, Tuesday
New York Fed President John Williams moderates discussion, while Richmond Fed President Tom Barkin speaks at a separate event, Tuesday
Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday
China GDP, retail sales, industrial production, Wednesday
UK CPI, Wednesday
Eurozone CPI, Wednesday
Morgan Stanley, Netflix, Tesla earnings, Wednesday
Federal Reserve issues Beige Book economic survey, Wednesday
Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday
Australia unemployment, Thursday
Japan trade, Thursday
China property prices, Thursday
US initial jobless claims, Thursday
Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
Japan CPI, Friday
China loan prime rates, Friday
President Joe Biden hosts the European Union’s Ursula von der Leyen in Washington, Friday
Philadelphia Fed President Patrick Harker speaks, Friday