The global markets are currently experiencing increased levels of volatility as a result of the conflict in Israel. This ongoing conflict in the Middle East has caused investors to seek safer assets, and economists are now discussing the possibility of a global economic slowdown. The uncertainty surrounding the situation has led traders to brace themselves for another week of volatile prices, with many closely monitoring the price of gold.
In addition to gold, the market is also closely evaluating oil prices and the performance of Tesouro bonds, which experienced significant gains and losses in the past week. The Israeli military has recently announced its preparation for “significant ground operations” in Gaza, which has further intensified concerns among investors. Meanwhile, the United States has engaged in quiet discussions with Iran to caution against escalating the conflict. U.S. Secretary of State Antony Blinken is set to visit Israel as part of his tour to the Middle East.
Experts, such as Bloomberg Economics, have raised concerns about the possibility of a global economic recession if the Middle East conflict escalates further. This adds to the list of worries for investors, including uncertainty about whether the Federal Reserve will continue to raise interest rates and concerns surrounding a leadership-less Congress’s ability to prevent a government shutdown.
According to Ed Al-Hussainy, Columbia Threadneedle’s global interest rate strategist, the current macroeconomic environment and fluctuations in interest rates have set the stage for a rise in global volatility. Although investors are closely following whether the Israel-Hamas conflict spreads to other parts of the region, currency traders are primarily focused on the actions of the Federal Reserve.
The Swiss franc has seen a significant increase in value against the euro, reaching its highest level in almost a year. Additionally, the U.S. dollar has continued its recent upward trend for the fourth consecutive week, despite moderate market volatility as indicated by broad indicators. S&P 500 stock volatility has also witnessed an increase.
Uncertainty within the United States is further contributing to market instability. The report of higher-than-expected inflation last week has fueled speculation about another interest rate hike by the Federal Reserve. This has prompted a surge in 30-year bond sales, reaching their highest daily volume since the beginning of the pandemic.
Furthermore, the United States House of Representatives currently lacks a leader. Although the Republicans have nominated Jim Jordan, who has received the endorsement of former President Donald Trump, concerns have been raised among moderate Republicans due to his extreme views, making it challenging for him to become Speaker of the House.
Despite these factors, investors still perceive the conflict in the Middle East as the predominant unknown. The potential impact on oil supplies remains a key concern. As long as oil supply remains stable, the market is expected to hold steady, according to Rabobank’s chief currency strategist, Jane Foley.
As the situation continues to evolve, the global markets will remain on edge, closely monitoring developments in the Middle East and their potential impact on various assets and economies worldwide.