Global financial markets experienced fluctuations on Monday as tensions in the Middle East, particularly Israel’s actions in the Gaza Strip, played a significant role in investor sentiment. Here’s an overview of the key market movements:
- Oil Prices: Brent crude, which had surged by nearly 3% on the previous Friday, dropped below $90 per barrel. Meanwhile, WTI (West Texas Intermediate) approached $84 per barrel, reflecting the complex dynamics of the oil market.
- Stocks: S&P 500 futures contracts saw a 0.3% increase after the S&P 500 Index fell 0.5% on the previous trading day. Investor risk appetite was subdued, driven by concerns such as the Federal Reserve’s hawkish stance and underwhelming corporate earnings.
- Currency Markets: Major currencies remained relatively stable, with the dollar showing little change against its peers. The 10-year Treasury yield witnessed an increase of more than three basis points, indicating movements in the bond market.
- Precious Metals: Gold prices experienced a slight dip but remained above the $2,000 per ounce mark, reflecting its status as a safe-haven asset during times of uncertainty.
- Bonds: Australian bond yields edged higher, in line with the broader bond market trend.
Eric Robertsen, the Global Head of Research and Chief Strategist at Standard Chartered Plc, emphasized the delicate balance between tight financial conditions and geopolitical risk aversion amid ongoing Middle East conflicts. He noted that, for now, it’s the volatility in interest rates that is influencing outflows from emerging market assets and developed market equities.
In terms of regional market reactions:
- Australia and Japan: Equities in these countries declined as geopolitical tensions weighed on investor sentiment.
- China: The Chinese stock market displayed mixed opening performances.
- China Evergrande Group: Despite being the world’s most indebted developer, it received a temporary reprieve as a Hong Kong court adjourned a winding-up hearing to December 4.
- Hong Kong: The Hong Kong stock market faced downward pressure, primarily due to the performance of Chinese banks. Bank of Communications and ICBC reported mixed earnings results.
In the electric vehicle (EV) sector, there was some positive news as Great Wall Motor, a Chinese automaker, saw its stock rise by 7.2% in Hong Kong following better-than-expected results.
Despite the Middle East tensions, Middle Eastern markets that opened on Sunday showed little sign of panic. Israel’s TA-35 stock index even experienced a 1.3% rise, narrowing its losses since the recent conflict began.
Notably, Israel’s military actions in Gaza have been cautious and measured. Instead of a full-scale ground invasion, the Israeli military has adopted a day-by-day approach, considering factors such as casualties, the risk of the conflict spreading to Hezbollah in the north, and internal political pressures on Prime Minister Benjamin Netanyahu.
Spencer Hakimian, founder of hedge fund Tolou Capital Management, noted that Israel’s ground offensive into Gaza is likely to have limited long-term impact on asset markets unless the conflict escalates to other regions, such as Iran.
The global stock market has been under pressure, losing $12 trillion in value since the end of July. Concerns have grown regarding central banks’ commitment to “higher-for-longer” interest-rate policies, potentially pushing the global economy toward a recession.
Market volatility, as measured by the VIX index (often referred to as Wall Street’s fear gauge), has increased, reaching above 21, though still below the levels observed during the market turmoil in March.
The upcoming week includes several potentially market-moving events, including central bank meetings in Japan, the United States, and the United Kingdom. One key event is the US Treasury Department’s quarterly bond sales plan, which may influence the momentum of 10-year Treasury yields, which surged to a 16-year high last week. The week will conclude with the release of the US payroll report, providing insights into job and wage growth trends.
