North American Morning Briefing: Stock Futures Dip, Oil Prices Whipsaw After Israeli Strike on Iran

OPENING CALL

Stock futures were lower on Friday after Israel's retaliatory strike on Iran roiled global markets, but the selloff weakened as the limited scope of the assault became clear.

Investors were also growing increasingly convinced that interest rates will stay higher for longer, a fear that will only be exacerbated by Israel's strike.

Rising oil prices increase costs for consumers and could fuel wider bouts of inflation. The escalation of tensions is likely to affect the timing of future Fed interest rate cuts, Ethos Investment Management said.

Premarket Movers

Frontier Communications Parent said a possible cybercrime group had gained access to its IT systems. Its shares slipped 3.6%.

KB Home was up 1.5% after it said its board authorized the repurchase of up to $1 billion in stock and boosted its quarterly dividend to 25 cents a share from 20 cents.

Netflix fell roughly 6% premarket, even though its quarterly results topped forecasts. Its projections for revenue this quarter weren't as rosy as analysts' expectations.

Paramount Global gained around 9%, boosted by a New York Times report suggesting that Sony's movie studio division is in talks with Apollo Global Management about joining a bid for Paramount.

Schneider Electric is in talks to take control of Bentley Systems , in a deal that could be worth more than $15 billion.

Trump Media & Technology Group was falling 3.7%.

Watch For:

Earnings from American Express, Schlumberger, Procter & Gamble

Today's Top Headlines/Must Reads:

- Fed Won't Cut Rates Soon. Financial Conditions Are Too Loose

- They Bet Against the Dollar. Now They're Paying the Price

- U.S. Stocks Have Outperformed Europe for Years. Why That Could Change for a While

MARKET WRAPS

Forex:

The safe-haven dollar trimmed earlier gains with UniCredit saying the reaction of the FX market to rising tensions in the Middle East has been relatively limited up to now, which might prelude to further consolidation as the week comes to a close.

Forex traders could remain cautious after the recent statement by U.S., Japanese and South Korean finance ministers highlighting weakness of the yen and Korean won against the dollar, though the impact of this has proved "relatively short-lived," UniCredit said.

The Swiss franc and the Japanese yen-traditionally safe-haven currencies alongside the dollar-outperformed the U.S. currency in the wake of Israel's retaliatory strike against Iran overnight, MUFG said.

"The initial FX moves today certainly seem driven by risk-off and higher oil prices."

The yen's rise could also reflect a reluctance to sell the Japanese currency at such weak levels which are close to levels where Japanese authorities could intervene, MUFG said.

SuMi Trust said the yen is likely to remain soft because the Mideast conflict could push up oil prices and make it more difficult for the Fed to cut interest rates soon.

The Bank of Japan may also raise interest rates in such a case, but the Fed is likely to react more quickly to inflation regardless of whether it is caused by higher energy prices or stronger domestic demand, SuMi Trust said.

Bonds:

Treasury yields have more room to rise, should data prompt a further selloff, but a phase of consolidation is likely now, SEB Research said.

Delayed prospects of interest-rate cuts by the Federal Reserve have lifted Treasury yields higher across the curve, but more so in the long end, SEB said.

Macro data and Fed communication will be crucial for the next move in rates, while the geopolitical situation and risk appetite add a layer of uncertainty, it said.

"Another round of strong data would likely push yields higher, but some consolidation seems likely for now."

Energy:

Oil prices were higher but eased back after spiking over 3% on news that Israel launched a strike against Iran, with XTB saying the attacks had been restrained, causing some relief to markets.

"However, the risk premium across asset prices is likely to rise as the future remains unclear."

The full extent of the impact remains unclear, but state-run news agency IRNA said its reporters hadn't seen any large-scale damage in the country, while the International Atomic Energy Agency confirmed Iran's nuclear sites are unharmed.

DNB Market said Israel's missile strikes against Iran seem fairly limited, pointing to a de-escalation of conflict that is expected to diminish the oil market's geopolitical risk premium in the short term.

"In our view, this was a 'symbolic attack' that will not force Iran to respond aggressively."

Metals:

Gold futures edged up on Middle East tensions, but were off earlier highs, with Swissquote Bank saying the market will likely see a further flight to safe havens before the end of the day on fears of an escalation over the weekend.

"Shorting oil and gold is risky as the Middle East is boiling. Having exposure to these commodities is a good hedge against the rising geopolitical tensions in the region."

Gold could retest its April record high, IG said.

Geopolitical risks in the Middle East appear to have heightened, with further reported escalations between Israel and Iran suggesting that the "tit-for-tat retaliation between both sides will drag for longer," IG said.

A counterattack from Iran is more likely than not, and this uncertainty has resulted in a broad risk-off tone with safe-haven demand for gold, driving prices higher and toward April's record high.

TODAY'S TOP HEADLINES

Netflix Dealt With the Freeloaders. Its Next Act Will Be Tougher.

Netflix's life on top won't always be an easy one.

The streaming pioneer managed to deliver another quarter of blockbuster subscriber growth. Net new paid subscribers of 9.3 million in the first quarter were nearly double the official 4.8 million analysts expected, according to consensus estimates from Visible Alpha. They were even above the sky-high whisper number range that several analysts pegged as the real target among large investors tracking the company's performance. It was yet another sign that the password-sharing crackdown that Netflix began last year still has legs. Netflix has added more than 31 million subscribers over the past three quarters since that program began-more than double what was added in the three quarters prior.

China Orders Apple to Remove Popular Messaging Apps

China ordered Apple to remove some of the world's most popular chat messaging apps from its app store in the country, the latest example of censorship demands on the iPhone seller in the company's second-biggest market.

Meta Platforms' WhatsApp and Threads as well as messaging platforms Signal and Telegram were taken off the Chinese App Store Friday. Apple said it was told to remove certain apps because of national security concerns, without specifying which.

Japan Inflation Records Two Years Above BOJ's Target as Meeting Looms

TOKYO-Japan's consumer inflation has stayed above the Bank of Japan's 2% target for two years, government data confirmed Friday, amid speculation over further interest-rate increases.

Overall consumer prices rose 2.7% from a year earlier in March, compared with the 2.8% increase seen in February, the data showed. While the cost of natural gas for households was lower than a year ago, food inflation, including prices of fresh food and eating-out, recorded growth.

China Moves to Raise Costs of Imports of Key Chemical From U.S.

China is moving to make it more expensive for U.S. shipments of a key industrial chemical to enter the Chinese market, shortly after Washington called for higher tariffs on Chinese steel.

China's commerce ministry announced the move on Friday, saying an antidumping probe had found that cheap imports of propionic acid from the U.S. had harmed the local chemical industry.

Israel Strikes Iran in Narrow Attack Amid Escalation Fears

Israel retaliated overnight against Iran's massive drone and missile attack on its territory, people familiar with the matter said-with what appeared to be a limited strike aimed at avoiding an escalatory cycle that could push the countries closer toward war.

The strike targeted the area around Isfahan in central Iran, one of the people said. Iranian media and social media reported explosions near the city, where Iran has nuclear facilities and a drone factory, and the activation of air-defense systems in provinces across the country after suspicious flying objects were detected.

Iran Targeted With Sanctions, Export Controls After Attack on Israel

The U.S. has hit Iran with a new wave of sanctions and export controls in response to the country's recent air attack on Israel, a move aimed at grounding Iran's drone program and pinching its national revenue.

The U.S. Treasury and Commerce Departments on Thursday announced a package of financial sanctions that targets a number of companies and individuals, both inside and outside Iran, alongside controls on low-level technology that could be employed in drone manufacture.

Biden Weighs More Than $1 Billion in New Arms for Israel

The Biden administration is considering more than $1 billion in new weapons deals for Israel including tank ammunition, military vehicles and mortar rounds, U.S. officials said, at a time of heightened scrutiny of the use of American-made weapons in the war in Gaza.

The proposed weapons transfers-which would be in addition to those in a military aid deal currently before the Congress-would be among the largest to Israel since it invaded Gaza in response to Hamas's attack that killed 1,200 people, mostly civilians, on Oct. 7.

Write to ina.kreutz@wsj.com

TODAY IN CANADA

Earnings:

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Economic Indicators (ET):

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Expected Major Events for Friday

06:00/GER: Mar PPI

06:00/UK: Mar UK monthly retail sales figures

14:00/US: Mar State Employment and Unemployment

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April 19, 2024 06:22 ET (10:22 GMT)

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