Weekly recap: Markets retreat amid intensifying Middle East tensions

Stock markets on both sides of the Atlantic are poised to finish the week lower, as risk-off sentiment dominated amid escalating military conflict between Iran and Israel. Crude oil prices surged, buoying energy stocks, while other sectors broadly experienced sell-offs.

Chinese equities, however, are on track to post another strong weekly gain on the Hong Kong Exchange, as ongoing stimulus measures continue to fuel the rally.

However, this optimism failed to lift other regional markets in Asia Pacific. 

Europe

Major European benchmarks are in the red this week, with the Euro Stoxx 600 down 1.82%, the DAX falling 2.35%, the CAC 40 dropping 4.03%, and the FTSE 100 slipping 0.46% weekly. 

The rally in European stock markets, spurred by Chinese stimulus policies, has lost momentum, with most sectors declining this week. However, the escalation of the conflict in the Middle East has driven up energy and defence stocks.

Luxury consumer stocks sharply retreated after last week’s surge. Over the past five trading days, LVMH has fallen by 5.88%, Hermès by 5.71%, and Richemont by 2.31%.

Large-cap stocks also underperformed due to the prevailing risk-off sentiment. ASML shares dipped slightly for the week, SAP fell by 1.67%, and Novo Nordisk tumbled 5.77% from last week.

Conversely, energy stocks benefited from the surge in oil prices, with Shell jumping 6%, BP rising 5.67%, and TotalEnergies increasing by 4.41%. The defence sector also surged, with BASF SE up 6.85%, Rheinmetall AG rising 4.91%, and BAE Systems gaining 4.67% over the week.

Stellantis shares slumped to their lowest level since October 2022 after the Italian automaker reported a 20% sales decline in the US.

Shares of Commerzbank AG remained close to a 12-year high, despite a slight pullback this week. Meanwhile, ECB President Christine Lagarde expressed support for bank mergers, amid speculation over UniCredit’s potential acquisition of Commerzbank.

On the economic front, the eurozone’s flash Consumer Price Index (CPI) cooled to 1.8% in September, below the ECB’s target, down from 2.2% in the previous month, according to Eurostat.

German preliminary CPI data showed that the country’s inflation rate fell to 1.6% year-on-year in September, down from 1.9% in August.

The cooler-than-expected inflation figures reinforced expectations for the ECB to accelerate interest rate cuts this year. The euro weakened by one cent against the US dollar over the week due to these developments.

Wall Street

US stock markets also ended the week on a negative note, following a series of stronger-than-expected economic data, dampening hopes for a near-term rate cut from the Federal Reserve.

Over the past five trading days, the Dow Jones Industrial Average dropped 0.71%, the S&P 500 fell by 0.67%, and the Nasdaq Composite slid by 1.12%.

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At a sector level, seven out of eleven sectors posted weekly losses, with consumer discretionary and materials leading the declines, down 2.28% and 2.25%, respectively.

In contrast, the energy sector surged by 7% this week due to soaring oil prices. The utility sector also benefited from expectations of lower interest rates, rising 2.54% over the week.

Tesla shares fell by 5% this week, following a disappointing third-quarter delivery report. It revealed that the electric vehicle maker sold fewer cars than expected highlighting the intense competition it faces and weakening consumer demand.

On the economic front, the JOLTs job openings report rebounded after two consecutive monthly declines in August, suggesting that the US labour market is stabilising.

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ADP’s non-farm payroll data, which provides automatic data processing, also showed higher-than-expected figures.

With employment remaining the Federal Reserve’s key focus, the upcoming non-farm payroll report, due later today, will be crucial for gauging market sentiment.

Asia Pacific

While China’s mainland markets were closed this week for National Day celebrations, the Hong Kong stock market resumed trading on Wednesday, with the Hang Seng Index up more than 7% from last week, likely marking its second consecutive weekly gain.

Japan’s new Prime Minister, Shigeru Ishiba, stated that the current environment was not conducive to an additional rate hike, triggering a sharp decline in the yen and boosting local stock markets on Thursday.

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The Nikkei 225 remained down by over 3% this week, due to widespread risk-off sentiment.

Australian equities also retreated sharply this week, with the ASX 20 falling 2% from its all-time high. Mirroring global trends, the energy sector outperformed, rising by 6% this week.

However, large-cap stocks in the mining and banking sectors underperformed, weighing on overall market performance.

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