Uddrag fra Julius Bear:
The tragic events that unfolded over the weekend in the Middle East have the world watching the news tickers. In addition to the immeasurable human toll, as the situation continues to unfold, how does this escalation impact the markets and the global economy? Our research experts provide their outlook in our Research Weekly.
- Conflict erupted in Israel over the weekend, shifting the financial markets into partial risk-off mode.
- Global yields went through a roller coaster and ultimately pushed higher in a week full of US labour market signals.
- Travel activity during the recent holiday period in China shows recovery is ongoing but starting to fade.
The financial markets should reflect the economic reality as closely as possible at any given point in time. However, this is a highly unemotional outlook that often runs into criticism, particularly when emotional events and footage hit the news. And while geopolitical strategists tell us that the impact of the recent escalations in the Middle East on the markets are likely to be limited, the markets have started to move as things could escalate if retaliation measures are so extreme that other involved parties have to step in.
Geopolitics: Eruption in the Middle East
Currently financial markets seem to be shifting into partial risk-off mode, with oil, gold, and the USD trading higher, while safe-haven government bonds could see a pause in yield increases. Top of mind is the risk of an escalation of the conflict towards Lebanon or Iran. Any escalation will determine how lasting the flight to safety on capital markets will be and if a broader impact on the economy is to be feared.
At least from a commodity perspective, geopolitics tends to be a temporary noise element rather than a lasting and impactful fundamental force. Our experts will monitor the current situation closely but believe that, for the time being, events will most likely follow the usual geopolitical playbook, with any escalation prolonging the duration and increasing the intensity of the shock. Further than just the Middle East, Chinese stocks continue to be dominated in the near term by global factors such as US rates and the fluid geopolitical situation.
How have tensions in the Middle East affected asset classes?
- Gold: Prices gained somewhat, but the reaction so far has been benign. The strong economy and easing banking stress compared to earlier this year limit the demand for this safe haven.
- Rates: Safe-haven government bonds are trading up, but the gains are not offsetting last week’s declines.
- USD: The market reaction was not large, with the EUR/USD still trading around 1.05. A rise in risk aversion would be a further tailwind towards our three-month target of 1.04, with any escalation being an upside risk to our USD forecast.
- Equities: Except for the oil & gas sector, the reaction of global equity markets was rather muted. Barring any escalation, the recent events should not derail the year-end rally we are anticipating.
