(Bloomberg) –Treasuries climbed with oil amid signs Israel is preparing for a ground invasion of Gaza. Stocks edged lower.
US 30-year yields dropped seven basis points to 4.79%, unwinding part of Thursday’s surge that was driven by a somewhat disappointing inflation reading and a weak bond auction. West Texas Intermediate crude hovered near $86 a barrel. Big tech led losses on Friday, while banks outperformed after solid results from JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. Meantime, Boeing Co. sank on signs of worsening 737 Max aircraft production issues.
A sharper escalation of the conflict in the Middle East could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. In that scenario, Bloomberg Economics estimates oil prices could soar to $150 a barrel and global growth drop to 1.7% — a recession that takes about $1 trillion off world output.
“The situation in Israel is a horrible one, and if it spreads into a regional conflict, the human costs will rise exponentially, and the financial costs around the globe will begin to rise very, very quickly as well,” said Matt Maley, chief market strategist at Miller Tabak + Co. “In fact, we’re surprised that the level of complacency in the stock market remains as high as it does right now.”
Traders also sifted through economic data and comments from US central bank officials for clues on the policy outlook.
US consumers’ year-ahead inflation expectations rose sharply in early October, driving a steep deterioration in Americans’ views of their finances as well as sentiment. 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.
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This story was produced with the assistance of Bloomberg Automation.
