Global Markets Brace for October Amid Geopolitical Uncertainty and High Yields

Global stock markets are opening a new trading month with familiar challenges, including significant geopolitical uncertainty, elevated oil prices, and decade-high U.S. Treasury yields. The Tel Aviv Stock Exchange concluded September with mixed results: the TA-35 index rose approximately 1.6%, the TA-90 index fell about 2.7%, and the TA-125 index climbed around 0.5%. New York markets also saw a mixed September, with the S&P 500 losing 0.5%, the Dow Jones dropping 4.3%, and the Nasdaq gaining 1.9%.

Futures indicate a positive opening for Tel Aviv trading, with Wall Street futures showing gains, particularly for the Nasdaq, amid a slight decrease in bond yields and oil prices. Asian markets are trading higher, with Tokyo's Nikkei up nearly 3%, led by chip stocks, following positive financial results from Micron. Hong Kong and Shanghai markets are closed for a holiday.

Israeli dual-listed stocks are expected to open with a slight positive arbitrage gap. Palo Alto Networks, Nova, and Elbit Systems are anticipated to rise, while Nice could see a significant jump. Conversely, Teva and Tower Semiconductor are projected to weaken. On the previous trading day, the Tel Aviv Stock Exchange closed mixed, with the TA-35 index down 0.4% and the TA-90 index up 0.6%. The insurance and defense indices showed gains, while banks and oil and gas indices declined.

Notable stock movements yesterday included a significant 30% surge in Smart Shooter following a major U.S. military contract for drone defense systems. Alrov Properties jumped nearly 20% on an acquisition offer from Alfred Akirov, potentially leading to its delisting. Nayax saw an over 8% increase after its co-founder purchased shares, and Israeli airlines Israir and El Al experienced sharp gains, possibly due to speculation about resuming flights to the UAE after a Flydubai incident.

U.S. Treasury yields remain at two-decade highs, reflecting concerns about U.S. debt, though they saw a slight retreat this morning, particularly for longer-term bonds. In contrast, Israeli bonds experienced gains yesterday, with the general Tel Bond index rising 0.2%. The Shekel is trading stably against the dollar at 3.07, while the dollar index (DXY) is at a three-month high, though the dollar has weakened against the Shekel year-to-date. Oil prices are down slightly, with Brent crude around $96 per barrel and WTI around $88, attributed to indications of recovering Saudi oil exports.

August's U.S. PCE inflation data came in lower than expected at 3.4% year-over-year, though still above the Federal Reserve's 2% target. Monthly inflation was 0.2%. U.S. private sector employment, measured by ADP, exceeded expectations with 90,000 new jobs in September, ahead of the crucial nonfarm payrolls report due Friday. Analysts anticipate around 100,000 jobs added in September, with a stronger-than-expected report potentially leading to negative market reactions due to increased expectations of an October interest rate hike.

Looking ahead, analysts warn that October could be even more challenging for the bond market than September, historically the second-worst month for U.S. bond returns. Despite seasonal trends, persistent inflation, increased debt issuance for AI expansion, and signs of an accelerating U.S. economy are creating significant headwinds for bonds. However, higher yields are also making bonds a more attractive investment for some investors.