Markets and the Middle East: How investors are weathering geopolitics
U.S. oil production reduces global sensitivity to Middle East disruptions
Cooling inflation, cenbank easing support investor sentiment
Potential for deeper selloff if geopolitical tensions escalate further
By Dhara Ranasinghe and Alun John
LONDON, Oct 3 (Reuters) -Conflict in the Middle East is escalating once more, but the mood music across financial markets remains upbeat for now due to shifts in oil production and as global interest rate cuts eclipse geopolitics.
Israel, still battling Hamas in Gaza, bombed Beirut on Thursday as it continued its conflict with Lebanese group Hezbollah days after being attacked by Iran.
Yet MSCI's world stock index .MIWD00000PUS is just 1% off last week's record highs and oil prices, which rose around 5% in the 24 hours after Iran's missile attack on Israel, have steadied around a far from threatening $75 dollars a barrel LCOc1.
Certainly, a bigger escalation that disrupts supplies of oil from the Middle East and shakes the global economy would invoke a bigger reaction, and the fact that stock markets are near record highs could make them vulnerable to sharp falls.
But for now markets are cushioned by the prospect of more monetary easing and by the United States' expanded role in oil production, which has offset the Middle East's dominance.
Wall Street's so-called fear gauge, the VIX volatility index .VIX, is at a moderate level around 20 - well below a post-pandemic peak above 60 hit during market turmoil in early August linked to an unwind in global carry trades.
"When we think about geopolitical risk and its transmission into asset prices, what will obviously have a bigger impact is if we see outcomes that materially impact growth or inflation," said Mark Dowding, BlueBay Asset Management's chief investment officer.
"The main concern really has been through a transmission impact on oil prices. But even here, we've been in a situation where, if anything that the oil price had been sliding."
The United States becoming a big oil producer - the world's biggest for the past six years - has reduced global sensitivity to Middle East supply disruptions, analysts say.
And European energy markets have reorganised themselves since Russia's invasion of Ukraine, which was a dramatic example of how an energy price surge can roil global markets and economies.
"The growing importance of the U.S. would suggest that risks to energy supply from rising tensions in the Middle East are somewhat mitigated," said Katharine Neiss, chief European economist at PGIM Fixed Income.
DIFFERENT TIMES
In 2022, when Russia invaded Ukraine, oil prices surged above $100 and gas prices soared, unleashing a fresh wave of inflation that piled pressure on central banks to hike interest rates, driving bond yields higher, especially in the U.S. and, in turn, boosting the dollar.
The situation today is different. Central banks are already in easing mode and hopeful the U.S. will avoid recession.
The world economy is not primed for an oil shock, said Trevor Greetham, Royal London Asset Management head of multi asset, because it is at a "softer stage of the cycle."
That contrasts with 2022, "when Ukraine happened, you were already in that period where you were just starting to get very high inflation numbers," Greetham said.
The current backdrop of easier monetary policy supports investor sentiment, even as tensions in the Middle East rise.
Tilmann Kolb, emerging markets strategist at UBS Global Wealth Management, said that while the past two years had seen significant developments in domestic and international politics, for markets, the economic outlook remained key.
"Where is inflation going? How is the Fed responding? Is growth holding up?," he said.
Meanwhile, investors have jumped on announcements of long-awaited economic stimulus measures from China that have sent Chinese shares surging, and boosted global assets from luxury stocks to industrial metals and miners.
"The impact of China delivering a big policy stimulus last week was almost a more significant factor in terms of what it means for global demand and growth," said BlueBay's Dowding.
RISK ON TO RISK OFF
Of course, the dial could swing very quickly and oil itself remains the transmission mechanism if geopolitics flare further.
Tina Fordham, founder and geopolitical strategist at Fordham Global Foresight, said she was watching to see if Israel would target either Iran's energy infrastructure or nuclear facility.
"Either of those targets would result in a market impact," she said.
"Where this could get more problematic is, for example, if Ukraine targets Russian energy infrastructure at the same time."
And with stock markets near record highs, there is scope for dramatic tumbles, policymakers warn.
The Bank of England said on Wednesday that global asset prices remain stretched and are vulnerable to a big fall as investors grow more concerned about geopolitical risks.
And for Andrew Bresler, CEO at Saxo UK, assets are mispriced given geopolitical risks, adding that volatility indicators such as the VIX should be higher.
"It's a little bit alarming to me how desensitised markets are to geopolitical risks," he said.
Oil and geopolitics https://reut.rs/3TRsmOT
Wall Street's fear gauge contained for now https://reut.rs/3XSOOs4
Reporting by Dhara Ranasinghe and Alun John, additional reporting by Naomi Rovnick; graphics by Amanda Cooper editing by Susan Fenton
تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
