Geopolitical risk impacts financial markets strongly

Wells Fargo (WFC) shares closed higher by more than 3% after the company reported third-quarter revenue of $20.86 billion, beating the consensus forecast of $20.16 billion. JPMorgan Chase (JPM) closed higher by more than 1% after it reported third-quarter investment banking earnings of $1.61 billion, better than the consensus forecast of $1.48 billion. Shares of BlackRock (BLK) closed down more than 1% after reporting third-quarter assets under management of $9.10 trillion, below the consensus forecast of $9.23 trillion.

The US economic news on Friday was mostly bearish for stocks after the University of Michigan’s consumer sentiment index for October fell by 5.1 to a 5-month low of 63.0, weaker than expectations of 67.0. Inflation expectations also rose. The University of Michigan’s US inflation sentiment for October unexpectedly rose to 3.8%, exceeding expectations of 3.2%. In addition, five-year inflation expectations rose to 3.0%.

Comments from ECB President Lagarde, who stated that “we are seeing a tightening of financing conditions such as we have never seen before,” suggest that additional ECB rate hikes may be postponed and the ECB will be assessing the impact of previous rate hikes that are still flowing into the financial system.

Crude oil prices rose more than 5% on concerns that the conflict between Israel and Hamas could spread and disrupt oil supplies in the Middle East. Iran’s foreign minister said Hezbollah militants could open a new war front with Israel if the blockade of the Gaza Strip continues.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) gained 2.23% for the week, China’s FTSE China A50 (CHA50) was down by 0.59% over five trading days, Hong Kong’s Hang Seng (HK50) ended the week up by 1.25%, and Australia’s ASX 200 (AU200) ended the week positive by 1.39%.

China’s exports for September declined by 6.2% y/y, less than expectations of 8.0% y/y. Imports for September declined by 6.2% y/y, less than expectations of 6.3% y/y. China’s total financing in September, the broadest measure of credit growth, rose by 4.12 trillion yuan, stronger than expectations of 3.70 trillion yuan. New RMB loans for September rose by 2.31 trillion yuan, weaker than expectations of 2.50 trillion yuan. Investors will be watching a flurry of new economic data from China on Wednesday for signs that the uneven recovery in the world’s second-largest economy is stabilizing. However, questions remain about the impact of the country’s real estate crisis and how much additional stimulus Beijing may still need to deploy. Economists expect gross domestic product data to point to a modest 4.4% annualized growth, still below Beijing’s target of about 5% a year.