This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

U.S. stocks shaken as Hong Kong market rallies
U.S. stocks fell on fears over growing geopolitical tensions. The S&P 500 slipped 0.93%, the Dow Jones Industrial Average lost 0.41% and the Nasdaq Composite retreated 1.53%. Hong Kong’s Hang Seng index popped around 5%, propelled by the year’s strongest rally in Hong Kong-listed Chinese property stocks.

Escalating Middle East conflict
Prices of WTI and Brent oil rose around 1.6% during Asian trading hours as conflict escalated in the Middle East. On Tuesday, Israel began a ground offensive in Lebanon and Iran launched a ballistic missile attack on Israel. Analysts told CNBC there’s a chance Israel will hit Iran’s oil infrastructure, which could cause oil to spike to more than $100 a barrel.

Widespread effect of port strike
Members of the International Longshoremen’s Association started striking Tuesday, halting activity at U.S. East Coast and Gulf Coast ports, which stretch from Maine to Texas. If the strike drags on, global supply chains and the economy could take a beating. That runs the risk of causing inflation to flare up again.

Risk-off on crypto
Amid this cautious atmosphere, investors pulled back from cryptocurrency. Bitcoin is currently trading at $61,407.21, down from nearly $66,000 on Sunday. Crypto-related companies also struggled on Tuesday. Coinbase tumbled 7.4% and fell around 1% in extended trading.

[PRO] Fund manager’s worst-performing stock
Ranmore Global Equity Fund managed to beat the S&P the past two years. But there have been slip-ups as well. Its fund manager shares with CNBC the worst-performing stock he’s picked: why he bought it, what went wrong and the lessons he learned.

(Fans of Rao’s pasta sauce need not fear, for now. Piper Sandler wrote that Campbell Soup, which bought Rao’s earlier this year, “has healthy levels of inventory on hand.”)

Meanwhile, oil prices spiked as markets feared Iran, a member of OPEC, would be dragged into a larger conflict in the Middle East. Higher oil prices pose a risk to inflation resurging, or at least slowing less than everyone is hoping for.

With those fears and uncertainties swirling, the Cboe Volatility Index, known as Wall Street’s fear gauge, climbed to 19.3 on Tuesday. It closed at 15.4 a week ago. Major U.S. indexes fell, with the tech-heavy Nasdaq suffering the most as megacaps like Tesla, Nvidia and Apple dropped.

It’s just the first days of the port strike and flare-up in Middle East tensions, however. The classic safe-haven trades, like bonds, gold and the U.S. dollar, aren’t showing up in the prices of those assets yet, noted CNBC’s Steve Liesman.

The best-case scenario would be that recent events are just minor turbulence on the way to a soft landing.

– CNBC’s Jeff Cox, Fred Imbert, Lori Ann LaRocco, Sean Conlon, Alex Harring and Brian Evans contributed to this story.  

Oil watchers are now seeing a genuine threat to crude supplies after Iran launched a ballistic missile attack on Israel, escalating conflict in the Middle East.

Iran on Tuesday launched the strike on Israel in retaliation for its recent killing of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon.

Iranian oil infrastructure may soon become a target for Israel as it considers a countermove, analysts told CNBC.

“The Middle East conflict may finally impact oil supply,” said Saul Kavonic, senior energy analyst at MST Marquee. “The scope for a material disruption to oil supply is now imminent.”

These latest developments could be a gamechanger, after a prolonged period of “geopolitical risk fatigue” during which traders brushed off threats of oil supply disruptions stemming from the situation in the Middle East as well as Ukraine, he said.

Up to 4% of global oil supply is at risk as the conflict now directly envelopes Iran, and an attack or tighter sanctions could send prices to $100 per barrel again, Kavonic added.

Iran’s latest missile attack followed Israel’s deployment of ground troops into southern Lebanon, intensifying its offensive against Hezbollah, the Iran-backed militant group. Most of the 200 missiles launched were intercepted by Israeli and U.S. defenses, and there were no reported fatalities in Israel as a result of the attack.

The attack came on the heels of Israel‘s deployment of ground forces into south Lebanon, escalating its offensive on Hezbollah, the Iran-backed militant group.

Oil prices gained over 5% in the previous session following the missile strike, before tapering to a 2% climb. Global benchmark Brent is now trading 1.44% higher at $74.62 a barrel, while U.S. West Texas Intermediate futures rose 1.62% to $70.95 per barrel.

Since the armed Israel-Hamas conflict started Oct. 7 of last year, disruptions to the oil market has been limited. The oil market also remains under pressure as increased production from the U.S. add to the supply picture, and sputtering Chinese demand have depressed prices, said Andy Lipow, president at Lipow Oil Associates.

Iran is the third largest producer among the Organization of the Petroleum Exporting Countries, producing almost four million barrels of oil per day, according to data from the Energy Information Administration.

Saudi Arabia cut its growth forecasts and raised its budget deficit estimates for the fiscal years 2024 to 2026, looking ahead to a period of higher spending and lower projected oil revenues.

Real gross domestic product is now expected to grow 0.8% this year, a dramatic drop from a previous estimate of 4.4%, according to the latest pre-budget report published by the Ministry of Finance on Monday. The GDP growth projection for 2025 has also been cut from a previous estimate of 5.7% to 4.6%; while the outlook for 2026 has been trimmed from 5.1% to 3.5%.

“The FY2025 budget highlights the Kingdom’s commitment to accelerate the regulatory and structural reforms, as well as the development of policies,” the pre-budget report read. “It also focuses on transformative spending to promote sustainable economic growth, improve social development, and enhance quality of life.”

The latest report further emphasized the Saudi government’s plans to deploy sovereign and development funds “for capital investment while empowering both the private and non-profit sectors to foster growth and prosperity.”

Saudi authorities also expect that the budget will remain in deficit for the next several years, as the kingdom prioritizes spending to achieve the targets of its Vision 2030 plan to modernize and diversify the heavily oil-dependent Saudi economy.

The Finance Ministry projected a wider budget shortfall of about 2.9% of GDP for 2024, compared with a previous projection of 1.9% for the year. It predicted deficits of 2.3% and 2.9% in 2025 and 2026, respectively, also wider than previous estimates.

Saudi Arabia’s fiscal breakeven oil price — what it needs a barrel of crude to cost in order to balance its government budget — has increased in recent months and years and may well rise higher along with spending increases.

The IMF’s latest forecast released in April put that fiscal breakeven figure at $96.20 for 2024, marking a roughly 19% increase on the year before. The figure is also about 36% higher than the current price of a barrel of Brent crude, which was trading at around $70.70 as of Tuesday afternoon.

Oil prices are expected to remain subdued at least in the medium-term amid slowing demand and increased supply globally.

Saudi Arabia is hosting major international events that will require steep spending — like the World Cup 2034 and Expo 2030 — as well as building out multi-trillion dollar megaprojects like Neom, which is backed by the kingdom’s mammoth sovereign wealth fund, the Public Investment Fund.

“Saudi Arabia’s GDP dances to the rhythm of oil, and with recent data from the Ministry of Finance, it’s clear that as oil gushes, so does the economy,” Tarik Solomon, chairman emeritus at the American Chamber of Commerce in Saudi Arabia, told CNBC. “But when the wells slow, so does the growth.”

Saudi Arabia’s public debt has grown from around 3% of its GDP in the 2010s to roughly 28% today, according to the International Monetary Fund — a huge jump, but still low by international standards. Public debt in EU countries, for instance, averages 82%. In the U.S. in 2023, that figure was 123%.

Its relatively low debt level and high credit rating makes it easier for Saudi Arabia to take on more debt as it needs to. The kingdom has also rolled out a series of reforms to boost and de-risk foreign investment and diversify revenue streams. While the country’s economy has contracted for the last consecutive four quarters, non-oil economic activity grew 4.4% in the second quarter year-on-year, up 3.4% in the previous quarter.

In January, about a hundred days into his job as PayPal CEO, Alex Chriss told CNBC’s David Faber that the payments company hadn’t had much to celebrate in recent years. But Chriss confidently said he was prepared to “shock the world.”

“I love being an underdog,” Chriss said in an interview on “Squawk on the Street,” from the floor of the New York Stock Exchange. He was responding to a question about a recent spate of analyst downgrades.

Dan Dolev of Mizuho Securities was among the skeptics. He cut his rating to the equivalent of a hold on Jan. 16, the day before Chriss’ CNBC appearance, headlining his report, “PayPal faces competitive pressure from ‘A’ to ‘Z.’” The A was for Apple Pay, and the Z represented payments app Zelle, a money transfer service jointly owned by seven of the top U.S. banks.

A few weeks later, PayPal issued weak guidance in its fourth-quarter earnings report, knocking the stock down 11% and justifying Dolev’s concerns.

PayPal appeared to be in deep trouble. Its market cap was down more than 80% since peaking in mid-2021. The company had just cut 9% of it workforce, about 2,500 jobs, and was mired in single-digit growth. Analysts across Wall Street saw rising competition and a declining take rate, or the percentage of revenue PayPal keeps from each transaction.

Fast forward to today, and the picture is dramatically brighter for the 26-year-old Silicon Valley company and its 47-year-old CEO.

Chriss hit his one-year anniversary at the helm on Friday. In the third quarter, which ended on Monday, PayPal shares jumped 34%, their biggest quarterly rally since mid-2020, when the early days of the Covid pandemic fueled a surge in online shopping. It was the first time in eight quarters that PayPal outperformed the Nasdaq, which gained just 2.6% in the past three months.

Dolev bolstered his rating back to a buy in May. In July, the company lifted its full-year profit forecast for a second time and increased share repurchases. Chriss said in the earnings release that the company was now “operating from a position of strength.” The stock rose almost 9%, its best day since late 2022.

“I think he’s been nothing but a phenomenal success story so far,” Dolev said. “The news flow has been out of this world amazing, in terms of the way they manage expectations.”

Susquehanna’s James Friedman lifted his rating on PayPal to a buy in early July. He said Chriss was “setting the bar high” with his comments on CNBC, but said he’s been delivering on his bold promise to shareholders.

“You know how he shocked the world?” Friedman said. “He actually beat his numbers.”

Much of Chriss’ early success has been tied to improved transaction margins and better monetization of key acquisitions like Braintree, which is used by Meta for credit card processing, and payments app Venmo, which is becoming more popular with businesses.

Having cut a lot of the fat in the organization and with a renewed focus on profitability, Chriss has finally sparked some excitement on Wall Street after replacing Dan Schulman, who retired following almost a decade as CEO.

“It was time for some new blood at PayPal,” said Dana Stalder, a startup investor at venture firm Matrix Partners who served as PayPal’s commercial chief from 2004 to 2008. “He’s made a lot of changes very quickly, and I think he has substantially increased the focus on the consumer, which is the right thing.”

Chriss, who spent 19 years at tax software provider Intuit prior to joining PayPal, took little time before he started overhauling the management team. In November, he brought in Isabel Cruz from Walmart as chief people officer, Michelle Gill from Intuit to run a new small business and financial services group, Diego Scotti from Verizon to oversee the consumer group as well as marketing and communications, and Jamie Miller from EY as CFO.

“He has turned over, from what I can tell, the vast majority of the leadership team,” Stalder said. “It’s been wholesale changes.”

Early in his tenure, Chriss publicly identified some of the reasons, in his view, that PayPal had been struggling to find its footing. He highlighted an overly aggressive strategy of expansion through deal making.

“We have done too many acquisitions over the last few years, and we’ve been defocused,” Chriss said in the January interview with Faber. “It was one of the things I noticed when I came in 100 days ago.”

Chriss added that the company had narrowed down its priorities to five key things, “all focused on profitable growth.”

The most important metric to fix, he said, was transaction margin dollars, which is how the company gauges the profitability of its core business. Among Chriss’ strategies to address the deteriorating margin was to offer merchants increased value-added services, such as connecting a couple of data points at checkout to drive down the rate of cart abandonment.

He said in January that 35 million merchants use PayPal and “when we improve their conversion rate, it improves their business, it improves our bottom line.”

PayPal noted to shareholders in its latest earnings report that its branded checkout, along with Braintree and Venmo, helped the company achieve its highest growth rate in transaction margin dollars since 2021. Overall transaction margin dollars increased 8% to $3.6 billion.

Susquehanna’s Friedman says a career at Intuit is the perfect training ground for learning how to mastermind a stock recovery. Speaking to executives there is like “talking to a dashboard,” he said.

“The source code to engineer a higher stock is profitability,” Friedman said. Chriss “really boils down his management style to the things that count” and “reducing what’s irrelevant,” he added.

With Venmo, the goal is to turn one of the most popular choices for money transfer from a strictly consumer app, which has no transaction fees, to a product for merchants. DoorDash, Starbucks and Ticketmaster are among businesses now accepting Venmo as one way that consumers can pay.

The company launched a national campaign last month for PayPal Everywhere, offering 5% cash back for using a PayPal debit card within the mobile app. Ferrell, the pitchman, can be seen in a commercial using the PayPal app to buy lemonade and gas, while singing a parody of Fleetwood Mac’s “Everywhere.”

Stalder says PayPal is way behind Apple and Google, which own the dominant smartphone operating systems with their own embedded digital wallets.

“PayPal has been stuck because it’s less convenient than the mobile wallets, number one,” Stalder said. “And number two, it hasn’t worked offline.”

But Stalder sees a real opportunity for PayPal, in part because Apple has just opened the Secure Element on iOS so that other developers can more easily use the phone for contactless payments, putting them on a more equal plane with Apple Pay.

That development allows PayPal to “ride the mobile wallet rails for the first time and make some real headway in offline payments,” Stalder said.

PayPal’s other point-of-sale effort is called Fastlane, a one-click payment option for online sales that can go head-to-head with Apple Pay and Shop Pay by Shopify. In August, fintech platform Adyen made Fastlane available to businesses in the U.S., and said it plans to expand the offering globally in the future.

Chriss told investors on the earnings call that the company is urgently pushing to meet the holiday rush.

“We need to get it on as many platforms as we can so that small businesses in particular can just one-click a button and turn it on for the holidays,” Chriss said. “We’re working with many of our large enterprises who want access to this before the holidays as well.”

Venture capitalist Oren Zeev has seen Chriss work with small businesses in another capacity. They served together on the board of home design startup Houzz, whose customers include a lot of architects and contractors.

“He obviously brought a lot to the table with his vast experience with small businesses,” Zeev said. As a communicator, Zeev described Chriss as “no drama” and “respected by everyone.”

While he’s quickly captured the respect of investors, who have lifted PayPal’s market cap by over $20 billion in the year since Chriss started, there’s a lot more to do.

The stock remains about 75% below its record high. Sakhrani says shareholders are “anxiously awaiting his multiple-year outlook” as opposed to just “trying to fix some of the stuff that was broken.”

“There’s going to be some pressure at some point in time, in the near future, for more definition around that,” Sakhrani said.

Chriss, for his part, isn’t declaring victory.

“Our teams are moving with urgency, excited about our innovation and focused on execution,” he said on the second-quarter earnings call. “We are still early in our transformation and while pleased with our progress in many areas, we know there is much more we can do and with greater speed.”

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