Stock indices are under pressure because of escalating conflict in the Middle East. The ECB has likely ended its tightening cycle

Airline stocks were under pressure yesterday after United Airlines Holdings (UAL) said profits would plummet if flights to and from Israel were suspended due to the conflict. As a result, UAL shares fell more than 8%. Morgan Stanley shares fell more than 7% after the company reported lower-than-expected third-quarter earnings from asset management. Nvidia (NVDA) was down by more than 3% yesterday after the company warned that new US restrictions on chip exports to China could hamper product development and cause other difficulties.

The US housing data had a mixed impact on stocks. US housing starts for September rose by 7.0% to 1.358 million units, weaker than expectations for a rise to 1.383 million units. Building permits for September fell by 4.4% to 1.473 million units.

Crude oil prices rose more than 1% to a two-week high. Crude oil prices jumped after Iran’s foreign minister called for an oil embargo against Israel.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) was little changed over yesterday, China’s FTSE China A50 (CHA50) lost 0.19%, Hong Kong’s Hang Seng (HK50) was down 0.23% by Wednesday’s close, and Australia’s ASX 200 (AU200) was positive 0.30% for the day.

The Bank of Japan is likely to discuss raising its inflation forecast for fiscal years 2023 and 2024 at its meeting later this month, extending the period for prices to reach or exceed the 2% target. The BoJ management believes the bank’s forecast for a key measure of inflation – consumer prices excluding fresh food – will likely be revised upward to 2% or more for the year beginning in April. That’s above July’s forecast of 1.9% and would mean the Central Bank sees inflation at or above 2% for three consecutive years, which could fuel speculation of policy normalization.

Recent data on China’s economy has set the government’s growth target at around 5% and made it less likely that additional stimulus measures will have to be resorted to before the end of 2023. However, the ongoing housing crisis remains a major obstacle, clouding the outlook for next year. China’s economic challenges come amid ongoing geopolitical tensions, with the US tightening restrictions on advanced technology and Europe testing the country’s dominance in electric vehicle exports. Economists expect China’s economic growth to slow to 4.5% in 2024.