Latest news with #geopoliticalRisk
Japan Times
16 hours ago
- Business
- Japan Times
Oil, war and tariffs tear up global markets' central bank roadmap
Investor unease about an increasingly uncertain environment is rising, as Norway's shock rate cut on Thursday highlights how U.S. tariffs, Middle East conflict and a shaky dollar make global monetary policy and inflation even harder to predict. Norway's krone slid roughly 1% against the dollar and the euro in a sign of how unexpected the move was. And Switzerland, which cut borrowing costs to 0% on Thursday, confounded some expectations among traders for a return to negative rates in the deflation-hit nation, as its central bank warned of a cloudy global outlook. Just a day earlier, the U.S. Federal Reserve kept rates on hold, and chair Jerome Powell said "no one" had conviction on the rate path ahead. The conclusion for markets: monetary policy uncertainty is one more headwind to navigate against a backdrop of geopolitical and trade risks. Global stocks pulled away from recent peaks, a gauge of expected volatility in European equities touched a two-month high as stocks across the region fell and government bonds, usually geopolitical risk havens, sold off. "We're at a moment of considerable policy and macro uncertainty," said BlueBay chief investment officer at RBC Global Asset Management Mark Dowding. "We can't see a clear trend on interest rates," he added, which meant he was holding back from active market bets across the group's investment portfolios. Volatility was set to rise, some investors said, because a choppy dollar and oil prices whipped around by geopolitics meant that central banks were far less able to provide markets and investors a clear route map for the future. "You cannot just take your cues from the central banks anymore as they are facing a harder job of reading the economy, themselves," T.S. Lombard director of European and global macro Davide Oneglia said. Rate-cutting European central banks are not just diverging from the Fed, which is grappling with the inflationary risks of U.S. President Donald Trump's tariffs. They are also struggling to navigate a new era where the dollar, the lynchpin of world trade, commodity prices and asset valuations, has turned weaker and more volatile under trade war stress and government debt anxiety. "That's a massive, massive fundamental shift in global markets that everyone is trying to assess," Monex Europe head of Macro Research Nick Rees said. "All of those standard economic rules of thumb we use for forecasting are completely broken right now." The dollar is down almost 9% against other major currencies this year but has risen following the outbreak of a war between Israel and Iran. European Central Bank policymaker Francois Villeroy de Galhau said on Thursday the ECB might have to adapt its rate cut plans if oil price volatility was long-lasting. The new status quo in markets could well be an era of central bank surprises that create rapid shifts in the market narrative, asset pricing and volatility trends, analysts said. "We're getting into this next cycle in which variables are much more volatile, because, rather than (monetary policy) being just easily predictable, events just take over, and policy and human factors, as we now know with Donald Trump, play an important role," Oneglia said. Norway's surprise cut came because the krone was a "runaway top currency" of the trade-war era, added Societe Generale's head of FX strategy Kit Juckes. With investors chasing around the world to identify stores of wealth that are not the U.S. dollar, meanwhile, the Swiss franc has soared, cutting the costs of imports and pushing the economy into deflation. On Thursday, the franc rose against the dollar as traders saw the SNB's cut as too small to keep deflation at bay. Ninety One multi-asset head John Stopford said the hazard risk was rising for global stocks and that options products that aim to offer protection from incoming volatility looked fairly cheap. He was buying bonds issued in nations where inflation and rates could come down materially, such as New Zealand, but was negative on longer-dated U.S. Treasuries and German Bunds where economic uncertainty was higher and government borrowing was likely to rise. Global stocks remain almost 20% above their April trough, after investors relaxed about tariffs. Stopford said there was more to worry about in the short term. "The stock market feels like it's a thatched house in a hot country with a fire hazard risk, and people aren't charging much to insure the house," Stopford added.
Reuters
2 days ago
- Business
- Reuters
Goldman estimates geopolitical risk premium of around $10 per barrel for Brent after prices rise
June 18 (Reuters) - Following the rise in Brent prices to $76-77 per barrel, Goldman Sachs estimates a geopolitical risk premium of around $10 per barrel, the bank said in a note on Wednesday. While its base case is that Brent declines to around $60/bbl in Q4 assuming no supply disruptions, Goldman said the $10/bbl premium appears justified in light of its lower Iran supply scenario where Brent spikes just above $90, and tail scenarios where broad regional oil production or shipping is negatively affected. The Iran-Israel conflict has raised fears of potential supply disruptions in the Middle East, a key oil-producing region, pushing crude prices higher as traders react to the growing geopolitical risk. President Donald Trump kept the world guessing on Wednesday whether the U.S. will join Israel's bombardment of Iranian nuclear and missile sites, as residents of Iran's capital streamed out of the city on the sixth day of the air assault. Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil. Brent crude futures settled 25 cents higher at $76.70 a barrel on Wednesday, while U.S. West Texas Intermediate crude rose 30 cents at $75.14. Separately, Barclays said on Wednesday that if Iranian exports are reduced by half, crude prices could rise to $85 per barrel and that prices could move past $100 in the "worst-case" scenario of a wider conflagration. Goldman said that the 45% decline in oil flows through the Bab-El-Mandeb Strait -- which connects the Red Sea to the Indian Ocean -- in 2025 versus 2023 illustrates the vulnerability of shipping to attacks from Iran-controlled Houthis.
Bloomberg
3 days ago
- Business
- Bloomberg
Emerging Markets Remain at Ease Even as Mideast War Escalates
The worsening Israel-Iran conflict is having little impact on the geopolitical risk premium for emerging markets, with investors betting that Tehran is too weak to spark a global market crisis. Across bonds, currencies and stocks, measures of risk are contracting despite Israel's war with Iran, as expectations of monetary easing, dollar weakness and an artificial intelligence boom dominate price action. Money managers say emerging-market gains and outperformance over US assets this year will continue as risks arising from the conflict will be neither deep nor lingering.
Reuters
4 days ago
- Business
- Reuters
India equity benchmarks set for muted open after Trump's Tehran warning
June 17 (Reuters) - India's benchmark indexes are set for a muted open on Tuesday, as investors adopt a cautious stance following U.S. President Donald Trump's call to evacuate Tehran amid escalating Israel-Iran tensions. The Gift Nifty futures were trading at 24,960 as of 8:02 a.m. IST, indicating that the Nifty 50 (.NSEI), opens new tab will open near Monday's close of 24,946.5. U.S. stock futures slipped and oil prices rose on Tuesday, as the fifth day of Israel-Iran fighting heightened fears of a broader regional conflict. Trump cut short his attendance at the Group of Seven summit in Canada, citing mounting tensions in the Middle East. He also reiterated that Iran should have agreed to a nuclear deal with the United States. India's equity benchmarks rebounded in the previous session, lifted by gains in heavyweight IT and financial stocks, even as geopolitical worries lingered. Foreign portfolio investors (FPI) remained net sellers of Indian shares for the fourth straight session on Monday, with outflows amounting to 25.39 billion rupees ($295.9 million). Domestic institutional investors continued to be net buyers for the 20th straight session. "Evolving geopolitical developments and oil price trends will be key drivers for domestic equities in the near term," said Satish Chandra Aluri, analyst at Lemonn Markets Desk. ** Mphasis ( opens new tab enters into a strategic deal with Sixfold to enhance insurance underwriting capabilities through integration of advanced AI platform ** Hyundai Motor India ( opens new tab commences production of passenger vehicle engines at Talegaon plant in Maharashtra ** Hikal ( opens new tab says its unit in Bengaluru has successfully passed the Brazilian Health Regulatory Agency's good manufacturing process audit for pharma inputs ** Godrej Properties ( opens new tab acquires land in Pune for a project with a revenue potential of 31 billion rupees ($1 = 85.8180 Indian rupees)
Yahoo
4 days ago
- Business
- Yahoo
3 ways the Israel-Iran conflict could spark a 20% S&P 500 sell-off, RBC says
There are three ways the Israel-Iran conflict could hit the stock market, RBC says. The bank sees as much as a 20% drop in the S&P 500 as a result of headwinds from the conflict. The impact on valuations, sentiment, and inflation are risks RBC is watching. US stocks appear to be digesting the initial shock of Israel's attack on Iran and the subsequent retaliation by Tehran, but there are three ways the conflict could drag the stock market down, RBC says. Altogether, headwinds from the conflict could drag the S&P 500 down to 4,800-5,200 range, the bank wrote in a note on Sunday, implying as much as a 20% drop in the benchmark index. Strategists said that, while sentiment and seasonal indicators have suggested that stocks could keep rallying, the bank's analysis of stock valuations, earnings, and economic growth has suggested the market has "gotten ahead of itself." "Developments in Israel/Iran since late last week have come at a complicated time for the US equity market," they wrote. "The broader the conflict becomes and the longer it lasts, the more problematic we think it will be for US equity markets," they added. Here are the three risks RBC sees hanging over stocks: The price-to-earnings ratio of the S&P 500 has tended to contract in time of rising geopolitical uncertainty. The bank also said that valuations never dropped to levels that could be considered "cheap" during the April tariff meltdown, and prices are back near records now. That means valuations are looking vulnerable to any shifts in the bull narrative. "This challenge comes at a time when stocks should be vulnerable to bad news from a valuation perspective," the bank said. Escalation in the Middle East could also cause sentiment to sour among consumers, investors, and businesses in the US. Sentiment, particularly among investors, had been improving in recent weeks and has been a "key driver" of the latest stock rally, RBC said. Yet, that optimism could ebb if the Israel-Iran Corporations and consumers, meanwhile, have already been displaying heightened caution. CEO confidence dropped to its lowest level in about three years in the second quarter, according to the Conference Board's latest survey. Consumer confidence, meanwhile, saw a modest increase in May, but Americans generally remain concerned about tariffs, extreme weather events, and other headwinds, RBC's analysis found. Mentions of geopolitics and war have also been on the rise in recent corporate calls, RBC said, citing its analysis of call transcripts. Oil prices could rise further if the conflict causes supply disruptions in the Middle East, RBC's commodities strategists said. That could end up stoking inflation and limit Fed rate cuts in 2025 — something that could also weigh on valuations, given how much of the bull story in 2025 hinged on the central bank taking interest rates lower, the bank said. RBC estimated that Personal Consumption Expenditures inflation, the Fed's preferred inflation measure, could rise as much as 4% on the back of the Israel-Iran conflict. Inflation at that level could limit the Fed to just two rate cuts in the second half of the year, strategists estimated. "This stress test points to fair value for the S&P 500 at the end of 2025 in the 4,800-5,200 range, near the bottom of our 2nd tier of fear and a retest of the early-2025 lows," strategists wrote. RBC recently lifted its year-end price target for the benchmark index to 5,730, implying 4% downside from the benchmark index's current levels. Still, most forecasters on Wall Street expect stocks to post a positive, but more muted, year of gains in 2025. JPMorgan, Citi, and Barclays recently revised their forecasts, with all anticipating the S&P 500 to end the year in the 6,000-6,300 range. Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
