Making sense of this crazy world
I’m back from a fantastic experience at the Masters. Golfing fans, you really must go. Always happy to have a chat about the experience and how to organise logistics.
Thank you to Gus for writing a very informed commentary last week. Much appreciated.
Normally, when I go away, the markets take a turn for the worse, a sort of karma for taking time out, it feels! It was pleasing to see markets respond positively for a change, boosted by the prospects of a long-term peace deal in the Middle East. Global equities climbed to all-time highs, helped by the strength of US stocks, with the S&P reaching a higher level than before the conflict escalated on 28th February.
Hands up, who deployed capital into the market when prices were low? Not many, we know, but well done to those who separated awful sentiment from the opportunities. As I’ve said before, when markets have plummeted, this must be the only sale when there isn’t a queue!
However, now isn’t a time for complacency. Markets have a habit of overreacting in the short term, and perhaps there is a lack of realism around the risks that are out there. A Bloomberg strategist says “A record high for stocks doesn’t imply that risks have returned to where they were in January; investors just seem to be under-pricing how much riskier the world is now. The S&P 500’s fresh peak suggests, on the surface, that risks have diminished below where they were at the end of February. Yet investors are still demanding a higher risk premium now versus then.”
The drawn-out conflict has rippled across the global economy, and any escalation in the conflict will have a significant impact moving forward too. The extent of the impact will depend upon geography and how economically sensitive regions and countries are to a higher oil price and higher inflation.
African nations are facing pressure, especially those that are net importers of oil, with fears over fiscal strains. It is estimated that Europe’s economy is twice as sensitive to oil shocks as the US but having just been over to the States, I can assure you that the price at the pumps is hurting their pockets too, and many aren’t happy with what’s going on.
A republican voter said to me, “I’m a Republican through and through, but I didn’t vote for this”, referring to the conflict with Iran. Another said “ I’m all in favour, we should have sorted this out once and for all in 1978”. He is an ex-military man, and for those who know their history, you will be aware that the current Islamic Republic was established in 1979 following the Iranian revolution.
This week’s content:
- Ceasefires and peace treaties
- Markets find their buoyancy
- What now for the markets?
- The consequences of oil shortages
- Investors see value in bonds
- Conclusion
Ceasefires and peace treaties
- Donald Trump struck an optimistic tone around the prospects of the US and Iran clinching a permanent ceasefire, saying talks could resume this weekend. Some Gulf Arab and European leaders believe a deal will take about six months, according to officials. A rally in global equities stalled in Asia as investors awaited progress.
- Trump said in a post yesterday that Israel and Lebanon had agreed to a 10-day ceasefire that will begin at 5pm. EST. That conflict has been a key sticking point to the extension of the ceasefire between the US and Iran.
- Pakistan is continuing efforts to bring Tehran and Washington together for a new round of talks, and Turkey today announced it’s preparing negotiations over a new regional security platform (source: Bloomberg).
- There were hopes of a prolonged ceasefire between Ukraine and Russia after what amounted to the briefest of ceasefires over the Orthodox Easter. However, both sides accused each other of hundreds of violations.
On Wednesday, Russia launched more than 700 drones and missiles at Ukraine in multiple waves overnight, amounting to the deadliest attack in months. Reinforcing that this conflict has a long way to go before a solution is found (source: BBC).
Continues…
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