Geopolitical risk returns with renewed vigor

October 9, 2023

As of Friday’s stock market close, the Dow Jones Index (US30) increased by 0.87% (week-to-date -0.14%), while the S&P 500 Index (US500) added 1.18% (week-to-date +0.56%). The NASDAQ Technology Index (US100) closed positive 1.60% (week-to-date +1.61%) on Friday. Stock indexes rose sharply on Friday despite a strong Nonfarm Payrolls report. Stocks retreated initially Friday morning, with the Dow Jones Industrials Index falling to a 4-month low after bond yields jumped on the back of a 336,000 increase in US employment numbers. Additionally, August employment data was revised upward by 40,000 to 227,000 from the originally announced 187,000. The unemployment rate for September was unchanged at 3.8%. But a short time later, stocks returned to the upside amid a falling dollar. The US consumer credit for August unexpectedly contracted by $15.62 billion, the largest decline in 3 years and weaker than expectations for a $11.70 billion increase.

Canada’s labor market beat expectations for the third consecutive month, and wage growth accelerated. The country added 63,800 jobs in September, and the unemployment rate was 5.5%, where it has been since July. The data beat expectations for a modest gain of 20,000 jobs and an unemployment rate of 5.6%. Workers’ compensation growth rose to 5.3%, also beating expectations of 5.1% and up from 5.2% a month earlier. This is the third consecutive month of accelerating growth. The data suggests that even in the face of rising interest rates, the economy continues to expand jobs and wage growth strongly. Overnight swap traders raised bets on further policy tightening by the Bank of Canada, with another 25 basis point rate hike expected by March 2024.

Equity markets in Europe were mostly up on Friday. The German DAX (DE40) rose by 1.06% (-1.36% for the week), the French CAC 40 (FR40) gained 0.88% (-1.45% for the week), the Spanish IBEX 35 (ES35) added 0.78% (-2.31% for the week), the British FTSE 100 (UK100) closed up by 0.58% (-1.49% for the week).

ECB Executive Board spokesperson Schnabel said on Friday, “I still see upside risks to inflation, and if they materialize, further interest rate hikes may be necessary.” European Central Bank President Christine Lagarde said in an interview published Sunday that she was confident the ECB would meet its inflation target of 2% and was relatively confident about Europe’s gas reserves situation.

On Saturday, militants from the Palestinian group Hamas launched an unprecedented attack on Israel. The number of Israelis killed since the attack began totaled more than 700, and another 750 were reported missing. In response, Israel imposed a state of war for the first time since 1973. The country’s leadership enacted a special clause, “40 alef,” which means a formal declaration of war and that the army is given full freedom of action. The Hamas attack was openly welcomed by Iran and the Lebanese group Hezbollah, an ally of Iran. Western countries, led by the US, condemned the attack and declared their support for Israel. The aftermath of the outbreak of the war between Israel and Hamas was reflected in the stock markets of Middle Eastern countries on Sunday. Israel’s TA-35 stock index, calculated in Tel Aviv, ended the session down about 7%, mainly due to a drop in bank stocks. It was the sharpest market decline in three years. Analysts say the impact on the Gulf and Middle East markets depends on whether the conflict spreads. If so, it will increase uncertainty in the markets, inflation, and economic growth will take a back seat to geopolitical risk. Analysts say rising geopolitical risk could lead to the buying of assets such as gold and the US dollar and potentially boost demand for US Treasuries. The dollar, considered a safe haven in tough times, rose against the euro and pound sterling in early trading. Gold also showed the gap up.

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Over the past week, Brent Crude fell about 11%, and WTI crude fell more than 8% amid concerns that continued high interest rates will lead to a slowdown in global economic growth, which in turn will affect fuel demand. On Sunday, Bahrain, Iraq, Kuwait, Oman, Oman, Saudi Arabia, and the United Arab Emirates reaffirmed their commitment to “collective and individual voluntary adjustments” in oil production levels. In other words, OPEC+ countries may resort to further supply cuts if oil prices continue to decline.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) fell by 3.45% for the week, China’s FTSE China A50 (CHA50) did not trade all week due to holidays, Hong Kong’s Hang Seng (HK50) ended the week up by 0.01%, and Australia’s ASX 200 (AU200) ended the week negative by 1.34%.

US-listed Chinese stocks rose on Friday after it was reported that spending on Chinese internet platforms during the Golden Week holiday exceeded pre-pandemic levels. As a result, shares of PDD Holdings (PDD) rose more than 7% and led the Nasdaq 100 stock price gains. JD.com (JD) and Baidu (BIDU) also rose more than 3%. In addition, shares of Alibaba Group Holding (BABA) rose more than 2%.

S&P 500 (F)(US500) 4,308.50 +50.31 (+1.18%)

Dow Jones (US30) 33,407.58 +288.01 (+0.87%)

DAX (DE40) 15,229.77 +159.55 (+1.06%)

FTSE 100 (UK100) 7,494.58 +43.04 (+0.58%)

USD Index 106.10 −0.23 (−0.22%)

News feed for 2023.10.09:

– German Industrial Production (m/m) at 09:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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Geopolitical risk returns with renewed vigor