US Open: Wall Street opens lower after the Middle East conflict escalation

• Wall Street indices opens lower as conflict between Israel and the Palestinian Islamist group Hamas deepened
• Tesla falls on lower deliveries of China-made EVs
• Several U.S. airlines suspend Israel flights

Wall Street starts the week on a downward note due to the intensifying conflict between Israel and Hamas. Both US500 and US100 indices are down by approximately 0.40-0.70%. Meanwhile, US 10-year bond yields remain consistent, hovering near the recent peak of 4.70%. Because of the heightened tensions, Oil.WTI and gold prices are rising. The current conflict remains a major uncertainty for financial markets because theoretically, it could lead to greater involvement of various other parties worldwide. The increase in gold prices may not seem significant, but it comes after weeks of substantial sell-offs.

Oil price

Oil prices experienced a significant surge following an unexpected attack on Israel by Hamas, destabilizing the Middle East situation again. This escalation led to the death of over 1,100 people in just a few days, creating potential ripple effects across the broader region. US crude futures spiked by up to 5.4%, reaching over $87 a barrel. While Israel is not a key player in the global oil supply chain, the ongoing violence could potentially involve the US and Iran, the latter having significantly contributed to the oil supply this year. Concerns rise as any retaliation against Tehran might jeopardize the Strait of Hormuz's critical oil passage. The recent price volatility is attributed to both geopolitical tensions and shifting market dynamics, with various banks offering differing perspectives on the conflict's long-term impact on oil prices.

Top market news

• Dallas Federal Reserve Bank President Lorie Logan stated that the recent increase in long-term Treasury yields might reduce the need for the US central bank to raise its benchmark interest rate. Logan highlighted that rising term premiums could cool the economy, diminishing the necessity for further monetary policy tightening. However, if the economy's strength is driving the interest rate rise, more tightening may be required.
• Major US airlines, including American Airlines, United Airlines, and Delta Air Lines, have halted flights to Israel after a severe attack by Hamas led to widespread violence. This decision aligns with the US State Department's travel advisories warning against potential terrorism and civil unrest in the region.

Companies Recommendation Wrap

• Pioneer Natural Resources Company (PXD.US) - buy recommendation from Roth MKM with a price target of $245 on Oct. 6, 2023, Exxon Mobil is in advanced talks to acquire Pioneer Natural Resources for $60 billion.
• AMC Entertainment Holdings (AMC.US) - neutral recommendation from B. Riley Securities with a price target of $15 on Oct. 3, 2023. AMC's Taylor Swift Eras Tour concert film surpassed $100 million in ticket sales.
• Alphabet Inc. (GOOGL.US) - buy recommendation BofA Securities with a price target of $146 on Oct. 4, 2023. Google introduced "Assistant with Bard," a new AI-driven personal assistant, at their 2023 event.

US500 index

The US500 is currently trading at 4330 points, marking a 0.40% decline today following Friday's higher close, which saw a break above the crucial 4300 resistance zone. While the index attempted to rally from the 4300 level, it is currently facing persistent selling pressure. Heightened global tensions and uncertainties surrounding interest rates have hampered risk assets from gaining momentum. Nevertheless, it's worth considering that a significant amount of bearish news may already be factored into the market, potentially creating a scenario where sentiment could shift if any positive catalysts emerge.

Company News

Microsoft (MSFT.US) has reportedly incurred losses on one of its initial generative AI products, with The Wall Street Journal reporting that the company was losing over $20 per user per month on average, and some users were costing as much as $80 per month. To mitigate these losses, Microsoft is planning to implement a higher pricing strategy for its upcoming AI software upgrade, as per the report.

In September, Tesla (TSLA.US) sold 74,073 electric vehicles (EVs) made in China, down 10.9% from the previous year, according to the China Passenger Car Association. Sales of China-made Model 3 and Model Y cars dropped 12% from the prior month. In contrast, Chinese competitor BYD saw passenger vehicle deliveries surge 42.8% year-on-year to 286,903. Tesla and other EV makers in China are hopeful for a consumer sentiment rebound, fueled by discounts and green vehicle tax incentives as the economy stabilizes. Tesla recently upgraded its Model 3 and Xpeng launched a revamped G9 SUV. Tesla is also facing an EU probe into subsidies for Chinese-made EVs, and its China-made vehicle deliveries hit a record 247,217 in Q2.

Source: xStation 5