Equity Bounce Ebbs as Middle East Tensions Persist
Market Outlook
A look at the day ahead in European and global markets.
Wall Street’s overnight rally had a muted impact on Asian markets, while tensions in the Middle East continued to escalate without any signs of resolution. The futures for U.S. and European equities remained flat, while MSCI’s broadest index of Asia-Pacific stocks outside Japan experienced a modest 0.7% increase.
Key Events
Several significant events are on the calendar:
- British wages data
- U.S. retail sales figures
- Corporate earnings reports
The diplomatic front also sees noteworthy developments. Russian President Vladimir Putin arrived in Beijing to showcase the “no-limits” partnership with China, while U.S. President Joe Biden is scheduled to visit Israel.
Investors’ Concerns
Investors are closely monitoring the situation in the Middle East, with concerns that Israel’s escalating conflict with Hamas could draw Iran into the battle, potentially leading to global consequences. Currently, investors are primarily expressing their apprehension by buying oil futures and divesting Israeli assets.
As a result of the ongoing tensions, Tel Aviv shares have dropped nearly 9% this month, and the shekel has weakened beyond the psychological 4-per-dollar mark.
While some traditional safe-haven assets, such as the yen and gold, initially saw increased demand, they are starting to retreat. The yen is gradually moving towards 150-to-the-dollar, and gold is easing off from a three-week high.
China’s Economic Outlook
China’s upcoming GDP data release on Wednesday has investors on edge. Country Garden, China’s largest developer, faces the possibility of an offshore default, as a 30-day grace period for a $15 million overdue offshore coupon payment ends. This potential default would highlight the deep confidence crisis gripping the sector.
Additionally, China’s civil servants and state-enterprise employees are facing tighter travel constraints, as Beijing intensifies its campaign against foreign influence.
Australia and New Zealand
Tuesday brought mixed signals from Australia and New Zealand. Surprisingly hawkish minutes from the Reserve Bank of Australia meeting this month pushed the dollar slightly higher. However, the Australian dollar stumbled after a slowdown in inflation, indicating that further interest rate hikes are less likely.
Summary
The markets remain cautious amid ongoing tensions in the Middle East. Investors’ focus is on key economic data, corporate earnings, and geopolitical developments. China’s upcoming GDP data release and the potential offshore default of Country Garden add further uncertainty. Mixed signals from Australia and New Zealand also contribute to the cautious sentiment.
