Stocks tumble, dollar firms amid geopolitical risk, mixed central bank views

It was a straight shot down on all three indexes right out the gate and all day long resulting in big 3-digit losses across the board. After inflation being a major concern on Wednesday, then not so much yesterday, today it was back on the board along with other disturbing developments such as an impending attack by Iran against Israel shooting down stocks and shooting up the price of oil and gold, and the ECB signaling that rate cuts in Europe could soon be coming. The Boston Fed Prez said there could be two rate cuts this year but there is some skepticism.  

But likely the biggest trigger to the panic-selling were disappointing Q1 results from the big banks reporting today – Citi, Wells Fargo and JP Morgan. The report below does not specify what those reports said but it was bad enough to bring the banking index down a whopping 3.3% in one day. Volume came in at 11.8 billion, a tad above the 4-week average. 

Stocks tumble, dollar firms amid geopolitical risk, mixed central bank views

By Lewis Krauskopf and Naomi Rovnick

Fri April 12, 2024 4:57 PM

DJ: 38,459.08  -2.43          NAS: 16,442.20  +271.84       S&P: 5,199.06  +38.42     4/11

DJ: 37,983.24  -475.84      NAS: 16,175.09  -267.10        S&P: 5,123.41  -75.65      4/12

NEW YORK/LONDON, April 12 (Reuters) - U.S. stocks sold off sharply on Friday while the dollar jumped as investors grappled with rising geopolitical tensions and persistent inflation that could lead to diverging monetary policy between the U.S. and Europe.  MSCI's gauge of stocks across the globe (.MIWD00000PUS), opens new tab was last down 1.2%, its biggest one-day drop in about six months, dragged down by U.S. performance.  Wall Street's main indexes all slumped well over 1% with the S&P 500 (.SPX), opens new tab posting its biggest one-day drop since Jan. 31, as first-quarter earnings season kicked off on a dour note with reports from major banks.

"We have a mix of elevated geopolitical risk, inflation worries and mild (earnings) disappointments," said Angelo Kourkafas, senior investment strategist at Edward Jones.  Worries that Iran might retaliate for an airstrike on its embassy in Damascus that it blamed on Israel have hovered over markets, propping up oil and prompting moves into gold and other safe-haven assets. Israel did not claim responsibility for the airstrike on April 1.  U.S. President Joe Biden said on Friday he expected Iran to attack Israel "sooner, rather than later" and warned Tehran not to proceed.  There are "concerns that there may be an attack on Israel by Iran," said Kristina Hooper, chief global market strategist at Invesco. "Geopolitical risk has been driving a lot of the moves."

Central bank outlooks were also in focus. The European Central Bank signaled on Thursday it could start cutting rates, while a hotter-than-expected inflation reading on Wednesday pushed back bets for the Federal Reserve's first cut until later in the year.  The dollar index gained 0.69% and hit its highest level in over five months. The euro was down 0.76%.  "We've got a dollar, U.S. interest rate strength play, that's what's going on here," said Joseph Trevisani, senior analyst at FX Street in New York.  The Japanese yen bucked the trend, firming 0.02% against the dollar in a rebound after hitting a 34-year low during the day as investors watched for signs of intervention from Tokyo officials.

On Wall Street, the Dow Jones Industrial Average (.DJI), opens new tab fell 475.84 points, or 1.24%, to 37,983.24, the S&P 500 (.SPX), opens new tab lost 75.65 points, or 1.46%, to 5,123.41 and the Nasdaq Composite (.IXIC), opens new tab lost 267.10 points, or 1.62%, to 16,175.09.

Investors were digesting results from JP Morgan (JPM.N), opens new tab, Citigroup (C.N), opens new tab and Wells Fargo (WFC.N), opens new tab, with the S&P 500 Banks index (.SPXBK), opens new tab dropping 3.3%.  Europe's STOXX 600 (.STOXX), opens new tab index rose 0.14%.

The yield on benchmark U.S. 10-year notes fell 5.9 basis points to 4.518% from 4.576% late on Thursday.  Federal Reserve Bank of Boston President Susan Collins is eyeing a couple of interest rate cuts this year amid expectations it could still take some time to get inflation back to targeted levels.  Market pricing implied investors expect the Fed to reduce its main funds rate by about 48 basis points this year after traders started 2024 betting on about 150 bps of cuts.

Oil prices rose on Middle East tensions.  U.S. crude settled up 0.75% at $85.66 a barrel and Brent settled at $90.45 per barrel, up 0.79% on the day.  Spot gold lost 1.24% at $2,343.76 an ounce, taking a breather after rising above $2,400 per ounce to an all-time high. 

Per the CBOE, volume came in at 11.8 billion, a tad above the 4-week average.