Global Markets in Unpredictable Waters: Amidst a complex global landscape, Asian share markets displayed a mixed performance on Monday. Geopolitical concerns were heightened as Israel’s military operations in Gaza raised fears of a broader conflict. Concurrently, the financial world’s attention turned to central bank meetings in the United States, Britain, and Japan, with speculation rife about potential policy changes.
As markets remain on edge, corporate earnings reports continue to roll in. Notable companies like Apple, Airbnb, McDonald’s, Moderna, and Eli Lilly & Co are among those expected to release results this week. So far, the earnings season has been somewhat underwhelming, contributing to the S&P 500‘s recent dip into correction territory, settling at 4,117 (.SPX).
Analysts from BofA noted the price action as “bad,” emphasizing that the S&P 500 couldn’t defend a critical level at 4,200. There’s a risk it could trend toward the 200-week moving average of 3,941 unless a trading rally intervenes.
On the economic front, S&P 500 futures in early Monday trading showed a modest increase of 0.3% to 4,151, while Nasdaq futures also gained 0.5%. Conversely, EUROSTOXX 50 futures slipped 0.2%, and FTSE futures remained relatively flat.
The geopolitical situation took a toll on risk appetite, with Israel’s actions in Gaza’s main city marking the “second phase” of a three-week conflict with Iranian-backed Hamas militants. The broader Asian market reflected this unease, with MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) inching down by 0.2%, following a one-year low last week. Meanwhile, Chinese blue chips (.CSI300) managed a modest gain of 0.1%.
China Evergrande Group (3333.HK) experienced a 20% drop in its shares on Monday as the Hong Kong High Court considered a winding-up petition against the embattled property developer, nearly two years after its debt default.
Also Read: Global Markets Waver Amid Middle East Tensions and Yield Surge
In Japan, the Nikkei (.N225) recorded a 1.1% decline, fueled by speculations surrounding the Bank of Japan (BOJ) possibly adjusting its yield curve control (YCC) policy following its two-day policy meeting, concluding on Tuesday. While many anticipate an increase in the central bank’s inflation forecast to 2.0%, the fate of YCC amid market pressures on bonds remains uncertain.
Barclays analysts noted the prevailing uncertainty, pointing out that concerns about wage prospects and global bond market stresses could lead the BOJ to err on the side of caution. This makes the potential scrapping of YCC a close call. Should YCC be abandoned altogether, Japanese bond yields may rise, adding to the pressure on already bruised global markets due to a severe sell-off in U.S. Treasuries.
Yields on 10-year Treasuries were at 4.87% on Monday, having climbed 30 basis points this month and hitting a 16-year peak at 5.021%. Sentiment will be further tested as Treasury announces its refunding plans, with more increases expected. NatWest Markets anticipates $885 billion of marketable borrowing in the fourth quarter and $700 billion in the following quarter.
The notable increase in market borrowing costs has led many analysts to believe the Federal Reserve will maintain the status quo at its upcoming policy meeting, with futures indicating a 97% likelihood of rates remaining at 5.25-5.5%. The market has also priced in 165 basis points of easing for 2024, beginning around mid-year.
Goldman Sachs analysts pointed out that the tightening of financial conditions driven by higher long-term interest rates has made another rate hike seem unnecessary. They estimate that the rise in yields is equivalent to a 100 basis point increase in rates.
Looking ahead, job figures due on Friday are expected to show a solid rise in U.S. payrolls for October, but annual growth in average earnings is predicted to slow to 4.0% from 4.2%.
Similarly, the Bank of England is anticipated to maintain its current stance, with markets pricing in around a 70% chance that the tightening cycle has concluded.
Oddly, the recent surge in U.S. yields hasn’t translated into a stronger dollar. Capital Economics analysts noted that the fall in global equity markets and the ongoing uncertainty surrounding the Hamas-Israel conflict have had limited impact on driving the dollar higher against risk-sensitive currencies.
As of now, the dollar remains stable against a basket of currencies at 106.580, having fluctuated between 105.350 and 106.890 last week. It saw a slight gain against the yen, reaching 149.74, but remained below last week’s high of 150.78.
The euro maintained its position at $1.0562 and has seen little change in its value over the month. In the commodity markets, gold remained steady at $2,003 per ounce. Oil prices, however, faced a decline as concerns about demand took precedence over Middle East supply risks, at least for the time being. Brent crude lost 65 cents, settling at $89.83 per barrel, while U.S. crude recorded a 77-cent drop, bringing it to $84.77.
Our Reader’s Queries
How unpredictable weather is squeezing the arteries of global trade?
Severe storms have caused a surge of port closures in China, while Brazil’s wild weather has led to the collapse of a port on the Amazon river. These extreme weather conditions are causing major disruptions to crucial shipping routes worldwide, resulting in slower global trade and higher prices.
What is the global trend in water resources?
Over the last century, the world’s water usage has skyrocketed by a factor of six, and it’s still on the rise. The 2020 UN World Water Development Report reveals that this trend is due to a combination of factors, including population growth, economic development, and changing consumption habits. In fact, water usage is increasing at a steady rate of about 1% per year. It’s clear that we need to take action to ensure that our water resources are used sustainably and efficiently.
Which country has market in water?
Water trading schemes are in place in several western states of the United States, Chile, South Africa, Australia, Iran, and Spain’s Canary Islands. Among these, Australia’s system is widely regarded as the most advanced and successful. Additionally, informal water trading schemes are also prevalent in certain South Asian countries.
Is there a global water crisis?
Did you know that over 770 million people worldwide do not have access to clean water? Shockingly, this means that 1 in 10 people on the planet are affected by the global water crisis. To make matters worse, women and girls are disproportionately impacted, spending an estimated 200 million hours each day carrying water. In rural Africa, the average woman walks a staggering 6 kilometers (about 3.7 miles) every day just to haul 40 pounds of water. These statistics highlight the urgent need for action to address this critical issue.