By Bianca Botes

Markets are on edge as they watch the escalation of the Middle East Conflict. This week we delve into some of the most prominent market events, as the global economic landscape remains volatile and uncertain.

IN THE SPOTLIGHT

US Federal Reserve:

The US Federal Reserve (Fed) chair, Jerome Powell's speech at the Economic Club of New York on Thursday, had investors on edge, as they feared a potential hawkish tone, following the more dovish sentiment of the recent Federal Open Market Committee (FOMC) meeting minutes.

This apprehension followed a string of positive US economic indicators which suggest ongoing robustness within the US economy and labour market. Powell, however, surprised by taking a more cautious stance.

While he left the door open for future hikes, he noted that the Fed needs to let the rise in bond yields “play out” and said that US monetary policy is currently not considered to be too restrictive. He also expressed concerns over significant geopolitical risk. His comments overall seem to point to no rate hike in November.

China

China's economy displayed resilience in the third quarter of 2023, surpassing market expectations, by expanding 4.9% year-on-year. This growth instils hope that China will meet its official annual target of approximately 5% growth for the year. This resilience can be attributed to Beijing's sustained stimulus efforts, which have helped counter the impacts of a prolonged property crisis and sluggish trade.

Notably, the Chinese Gross Domestic Product (GDP) grew by 6.3% in the second quarter, benefiting from a favourable comparison to the low base of last year when strict lockdowns were in place in major cities, including Shanghai.

Moreover, China's economic health in September became evident as retail sales posted their highest increase in four months, marking the ninth consecutive month of growth. Meanwhile, industrial output growth remained at its highest level since April, reflecting ongoing economic strength.

The surveyed jobless rate also saw a significant decline, reaching a 22-month low at 5%, and fixed investment continued to grow during the first nine months of 2023.

Bonds markets

Bond markets worldwide are experiencing a surge in yields, keeping investors on alert. In the US, Treasury yields have been on a steady ascent, with both two-year and 20-year yields surpassing the 5.25% mark. Notably, the 20-year yield reached a record high, while the two-year yield achieved its highest level since 2006.

The benchmark US 10-year Treasury note yield, in particular, has seen a four-day consecutive increase, reaching 4.96% on Thursday, marking a 16-year high. This trend is driven by the mounting anticipation that the US Fed will maintain elevated interest rates for an extended period.

This surge in bond yields is not exclusive to the US. Across the globe, similar patterns are emerging. For instance, the 10-year Government Bond Yield in Hong Kong has reached a 16-year high of 4.511%. New Zealand's 10-year government bond yield rose to 5.6% on Thursday, extending its upward trajectory for the third consecutive day and maintaining its highest level in nearly 13 years.

Middle East

The Middle East conflict also remains a concern for investors as they closely monitor global conditions. This war has the potential to impact oil prices, potentially leading to higher global fuel prices, similar to what occurred after Russia's attack on Ukraine.

While current prices have stabilised after the initial surge in crude oil costs, it may be advisable to keep your petrol tank filled as a precaution in case the situation in the region escalates. Meanwhile, investors seeking safety during times of uncertainty could further strengthen the US dollar and increase demand for assets like gold. Although there was a rush to traditional safe-haven commodities when news of the conflict broke, the market has since stabilised.

Bianca Botes is a director Citadel Global.