October 1, 2024, Tel Aviv, Israel: A missile launched from Iran appeared over Tel Aviv.
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Stephen Roach, a senior fellow at the Tsai Ing-wen China Center at Yale Law School, said the combination of conflict in the Middle East and rising unemployment in the United States puts the market at risk of a “big hit.”
The conflict in the Middle East escalated on Tuesday when Iran launched a ballistic missile attack on Israel after killing Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon.
Most Asian markets fell on Wednesday, tracking losses on Wall Street overnight, as investors fretted about escalating tensions in the Middle East.
“Markets really don’t know where to turn,” Roach said, adding that conflict in the Middle East was exacerbating inflationary risks at a time when central banks around the world are starting to ease monetary policy.
“We’re probably going to see a significant increase in volatility and the market is going to be really volatile,” Roach told CNBC’s “Squawk Box Asia” on Wednesday.
oil market impact
The Israel Defense Forces said its forces had begun launching new strikes against Hezbollah targets in Lebanon in response to an Iranian missile strike late Tuesday.
It remains to be seen whether this will have a lasting impact on inflation, Santander chief economist Stephen Stanley said, adding that oil markets would be “more severely affected” if tensions escalated.
Iran is OPEC’s third-largest producer, producing nearly 4 million barrels of oil per day, according to the U.S. Energy Information Administration. After the missile attack, oil prices rose by more than 5%, before gradually narrowing their gains to 2%.
market fluctuations
Kelvin Tai, regional chief investment officer at UBS Global Wealth Management, said whether the market’s risk-off trend will last longer depends on several key factors, one of which is Israel’s response to the Iranian attack.
“If this was a measured response and not aimed at mass harm and killing… things in the Middle East might actually be resolved a little bit… You wouldn’t see a response to a regional war Fears are escalating in the Middle East,” he said.
At the same time, Roach said that the escalation of tensions in the Middle East poses upward risks to oil prices and inflation. “Central banks will definitely have to think twice before continuing to adopt further easing policies,” he told CNBC.
The Fed is expected to cut interest rates by another half percentage point at its next two policy meetings this year, according to its so-called dot plot. Beginning with the September meeting.
Traders are also eyeing Friday’s U.S. jobs data Get more indications on economic conditions following the introduction of the Reserve Bank’s policies Interest rates were cut significantly in September. A higher-than-expected unemployment rate may prompt the Fed to speed up its easing cycle to achieve a soft landing.
According to Reuters London Stock Exchange Group (LSEG) survey data, the unemployment rate in September is expected to be 4.2%, the same as in August. The unemployment rate has jumped to nearly A three-year high of 4.3% In July, it was up sharply from the five-decade low of 3.4% in April 2023.
Tai said another factor that could drive further market volatility is how long the strike by longshoremen on the eastern U.S. and Gulf Coast will last.
Longshore workers at ports from Maine to Texas have staged massive strikes over wage disputes and the threat of automation. This is expected to disrupt global supply chains and has Nearly half of the country’s shipping operations have been suspendedReuters reported.
“Any disruption to the ports, any shutdown of the ports will have very significant economic consequences very quickly,” said Peter Tirschwell of S&P Global Market Intelligence. “This situation will have very significant economic consequences very quickly,” he warned. The longer it goes on, the faster the economic damage will be” will be installed. “
Correction: This article has been updated to correct a quote from Kelvin Tay, regional chief investment officer of UBS Global Wealth Management.
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