Global Markets Open With Caution; Israeli Shekel Weakens Ahead of Elections

Global markets began the new trading week with notable investor hesitancy. U.S. stock futures showed only slight gains, while Asian markets traded mixed. South Korean chipmakers Samsung and SK Hynix were trading near their baseline levels. Oil prices saw a decline after reaching new highs last week, and U.S. Treasury yields continued their downward trend as investors moved towards safe-haven assets. The 10-year yield fell approximately 2 basis points to 4.96%, and the 2-year yield dropped over 1 basis point to 4.66%.

Asian stock markets experienced a mixed performance. Tokyo's Nikkei fell about 0.2%, Shanghai weakened by roughly 0.2%, and Seoul's Kospi retreated by approximately 0.7%. Conversely, Hong Kong's Hang Seng index rose by about 0.4%. South Korean tech giants Samsung and SK Hynix showed mixed trading, with Samsung down around 0.7% and SK Hynix up about 0.7%.

U.S. stock futures indicated modest gains, with S&P 500 and Dow Jones futures up around 0.2%, and Nasdaq futures showing a minimal increase of less than 0.1%. Last week, the New York Stock Exchange closed mixed, with the S&P 500 and Nasdaq down 0.5% and 0.7% respectively, marking their second consecutive negative week. The Dow Jones, however, climbed 0.4%. The pressure on chip stocks continued, with the SOXX ETF, tracking the sector, falling 3% for the week and entering bear market territory, down 27% from its June peak. In contrast, cybersecurity stocks had a strong week, with the CIBR ETF rising about 7.4%.

Investors are keenly awaiting earnings reports from tech giants like Alphabet (Google), Microsoft, and Amazon, which are expected to be critical for AI-related stocks. Concerns about massive tech spending, coupled with expectations of continued monetary tightening in the U.S., will focus attention on companies' capital expenditure forecasts and their translation into profits. Nick Giambruno, chief market strategist at Alpine Macro, noted that the market is critically examining AI-related expenditures, suggesting potential short-term pain. Other notable companies reporting earnings this week include Visa, Coca-Cola, Eli Lilly, ExxonMobil, Chevron, and BP.

The Israeli shekel weakened by about 0.5% against the dollar, trading at 3.116 shekels, a level not seen in about six months. Yossi Menashe, founder and co-CEO of Altshuler Shaham Financial Services, stated that the shekel is entering election week with high sensitivity to political developments and changes in Israel's risk premium, noting that uncertain election outcomes could impact the currency. Economists at Leader Capital Markets suggested that widening interest rate differentials with other countries may hinder significant shekel appreciation.

Oil prices saw a slight pullback of around 2%, with Brent crude trading near $114 per barrel and WTI around $101. Last week, oil prices surged due to concerns about potential future conflict with Iran and ongoing tensions between Saudi Arabia and the Houthis. Adam Tranquist, a strategist at LPL Financial, attributed the price increases to fears of supply disruptions following Houthi attacks on Saudi energy infrastructure.

In the cryptocurrency market, Bitcoin fell over 1% to below $80,000. On the Tel Aviv Stock Exchange, dual-listed stocks are expected to return with a slight positive arbitrage gap of 0.25%. Palo Alto Networks and NICE are anticipated to perform well, while Formula Systems is expected to decline. The local stock market closed last week mixed, with the TA-35 index down 2.4% and the TA-125 down 1.4%, while the TA-90 index rose 2.1%. The construction index led gains, while the technology index lagged due to negative sentiment towards AI and chip stocks.

Goldman Sachs significantly cut its 12-month forecast for South Korea's Kospi index by a quarter, from 12,000 to 9,000 points, though this still implies an upside of over 60%. The investment bank noted that current valuations of South Korean chip stocks reflect an excessively pessimistic scenario for sector earnings. Goldman Sachs continues to favor opportunities in the power, industrial, corporate governance, and Korean pop culture sectors.