Welcome to ‘Pantophobia.’ Markets have a ‘fear of everything,’ says BNY-Mellon.

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“Markets have a fear of everything today — call it pantophobia — and yet that hasn’t fully manifested into a panic.”

— Bob Savage, head of markets strategy and insights, BNY Mellon

That was a BNY Mellon strategist summing up the market mood on Friday, as big earnings reports started rolling in from U.S. banks and tensions in the Middle East continued to build, pushing oil prices higher.

Bob Savage, head of markets strategy and insights at the bank, said instead of panic, there was an “orderly unwinding of the optimism that drove most of the week” until Thursday’s consumer prices, which put both peak rate and inflation views “back in doubt.” That’s even as annual U.S. consumer prices held at 3.7% and core slipped to 4.3%.

The problem, he says, is that service sector inflation is dominating the U.S. and in China where data also on Thursday showed flat overall inflation, but a 1.3% gain in service inflation.

“There is little evidence that rate hikes have much effect on such unless unemployment shifts and that failed to show up in the U.S. jobless claims just as it isn’t evident in most of the rest of the world from Korea to the EU where historic record low unemployment remains in play,” said Savage in a Friday note to clients.

The analyst said investors also remain confused about where they can find a haven investment “in a world with two wars threatening to escalate beyond their borders.

“The Ukraine story has taken a step back from the headlines but intertwines itself into the weekend ahead with the Polish elections and with the U.S. House Speaker race,” he said.

Read: Scalise ends bid to become House speaker after failing to secure enough votes

Polish parliamentary elections are seen as an important test of continued support for the European Union, as the country sits on the border of Ukraine, now at war with Russia for more than a year.

Daniel Wood, portfolio manager for emerging debt at William Blair Investment Management, said in a note that neither of the biggest parties are likely to win an outright election, meaning a government watered down by coalition partners, and possibly less support for the EU.

Poland was just one worry in a bigger worrying world, said Savage. “The U.S. role in funding the Ukraine defense requires some certainty of U.S. political will to continue while the Russia link to Iran and its role in the Middle East continues to worry all,” he said.

Oil prices
climbed more than 3% on Friday, while gold
was at three-week highs as investors watched an intensifying nearly week-old war between Israel and Gaza.

The Israeli military on Friday warned around 1 million residents in Gaza to move from the northern to the southern part of the country, something that the UN described as nearly impossible. Fears are rising that Israel plans to imminently begin a ground war, another escalation in the troubled region.

“The weekend risk of further Israeli war escalation seems obvious as the driver of bond buying, gold buying and oil buying. The markets perhaps justly have been trained to fear the unknown most of all and that stands out as the driver of the day,” he said.

The start of the U.S. third quarter earnings reporting season on Friday saw JPMorgan
and Wells Fargo
beating forecasts, but also ushered in a weaker Michigan preliminary October consumer sentiment survey. In all, Savage said it would be tough to return to the optimism fueled by Federal Reserve speakers and the Fed minutes earlier in the week.

Indeed, the S&P 500
was barely higher on Friday, with the Nasdaq Composite
dropping 0.2%, though major indexes were still poised for weekly gains of 1% and 0.7%, respectively.

Read: The stock market likes to climb a wall of worry — but now that’s crumbling

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