Notable market news this past week (15-Oct-23)
Here is the Skeptivest roundup of the latest market headlines for the week
🏛️ Updates on the Israel-Hamas War, Implications on geopolitics and markets
Context: A deadly surprise attack by the Palestinian Islamist Group Hamas last weekend prompted Israel to declare a state of war and launch retaliatory strikes. Israel has vowed to wipe the group “off the face of the Earth”. Israel has cut electricity to the Gaza Strip, where airstrikes continued.
War management cabinet formed: On Wednesday, Israel established an uncommon emergency government that includes certain opposition members to oversee its conflict with Hamas. PM Benjamin Netanyahu's office announced the creation of a "war management cabinet" consisting of three members: Netanyahu, Defense Minister Yoav Gallant, and former Defense Minister Benny Gantz, who currently leads an opposition party.
Causalities: The militant group killed more than 1,200 Israelis, and the resulting bombing campaign by Israel that Gaza authorities say has killed 1,500 Palestinians.
Humanitarian crisis: Palestinians hurriedly departed from the northern section of the Gaza Strip after Israel issued a 24-hour evacuation notice to the 1.1m people in that area—an action deemed impossible by the UN. Essential supplies, including water, are dwindling as Israel's military has restricted access, and Gaza's sole power plant has depleted its fuel reserves. Hamas have abducted 150 people back to Gaza - including 14 Thai citizens (who are agricultural workers).
Geopolitical implications:
- Biden backs Israel: President Joe Biden pledged complete support to Israel, including the delivery of munitions and intelligence assistance, condemning the Hamas attack as "an act of sheer evil.". Biden delivered his most extensive and emotional comments to date on the attack, denouncing the violence as “abhorrent.”
- China on the sidelines: Although China's Foreign Ministry expressed sadness over the casualties (which US lawmakers say, only came after congressional leaders complained), Beijing refrained from criticizing Hamas in its statements. Instead, the country reiterated its longstanding call for a two-state solution to the Israel-Palestine conflict, emphasizing its role as a friend to both sides.
- Lebanon missiles: Hezbollah, the Iran-funded group that operates from Lebanon, has expressed solidarity with Hamas and fired several rockets at Israel. Investors sought refuge in safe haven assets like US Treasuries as Israel reported a military post near the border hit by an anti-tank missile fired from Lebanon.
- US-Saudi Arabia-Israel Deal: Saudi Arabia paused talks to normalize ties with Israel. Deal was supposed to (i) Saudi to recognize Israel formally, improving relations, (ii) US to provide Saudi with weapons and security, (iii) Saudi to increase oil supply, capping oil prices.
- US, Qatar block Iran from accessing $6b: There are concerns that Iran may have potentially been involved in the attacks via supporting Hamas. Therefore, the US and Qatar have agreed to deny Iran access to $6b recently transferred to the nation as part of a deal between Washington and Tehran that led to the release of five imprisoned Americans from Iran last month.
Implications on markets:
- Volatility for oil: According to industry experts, neither Gaza nor Israel produces much petroleum, so the overall effect on oil and gas prices is likely to remain limited — as long as no third parties from in or outside the region become involved. Its neighbors, however, are top oil producers. Concerns over Iran (a major oil producer + sits next to Strait of Hormuz, the biggest chokepoint for oil globally) were involved in the attacks. Further involvement making this a protracted regional war will have severe implication on oil prices, which will then impact cost of doing business worldwide - and hence, prices on everyday goods too.
- Treasuries and gold: Safe haven assets like gold/treasuries have risen and should continue to see demand as the war continues on.
- Stock market: Markets seems to be reacting by saying “we’ve seen this before”. This corroborates what we’ve seen this year: Russian aggression in Ukraine had only a muted effect, if any, on the US economy and markets.
- Israeli Shekel: Weakened to its lowest level against the dollar since 2016. Bank of Israel said it would sell up to $30b of foreign currencies in the open market to maintain stability. Nevertheless, note that even before the war, the Israeli currency had already lost roughly 9% of its value compared to the USD this year due to strengthening USD from persistently rising rates.
- Industries: Fertilizer makers jumped after the surprise attack on Israel raised concerns over how the conflict could impact global supplies of nutrients used to grow crucial food crops. The Port of Ashdod in Israel, a critical hub for Israel's potash fertilizer exports, is now in emergency mode, posing a potential risk to up to 3% of the global potash supply.
☕️ Quick fire happenings to note
🌏 Global macro
- Golden Week reflects ongoing negative Chinese consumer sentiments: Revenue from China's "Golden Week" holiday in tourism witnessed a year-on-year surge, albeit only slightly surpassing pre-Covid levels. This indicates that subdued consumer sentiment continues to exert pressure on the country's economic growth. During the eight-day holiday period, domestic tourism revenue amounted to $103b, marking a 1.5% increase compared to the corresponding figure in 2019, as reported by the country's tourism ministry.
- China directly intervening to stabilize stock market?: China's sovereign wealth fund has increased its ownership in the country's largest banks, marking the first such rise since 2015. This has fueled speculation that authorities might escalate efforts to support the declining stock market. This move aligns with a growing sentiment among Chinese economists and hedge funds urging the government to directly intervene by establishing a stabilization fund to purchase stocks.
- Less need for the Fed to hike?: Federal Reserve Bank of Dallas President Lorie Logan said the recent rise in long-term Treasury yields may mean less need for the US central bank to raise its benchmark interest rate again. This week, treasuries jumped the most since March after Federal Reserve officials made dovish comments (see below) and conflict in the Middle East fueled a flight to safer assets.
- A more dovish tone: Federal Reserve Governor Michelle Bowman moderated her hawkish stance to some extent during an event at the World Bank/IMF annual meetings in Morocco. In her prepared remarks, she mentioned that interest rates might have to increase more and remain elevated for a longer duration than initially anticipated to bring inflation down to the target. This adjustment contrasts with her earlier comments this month, where Bowman suggested the possibility of multiple rate hikes.
- Or perhaps not, with latest US CPI data: US consumer prices continued to rise robustly for the second consecutive month, potentially strengthening the Fed's commitment to maintaining elevated interest rates as a measure against inflation. The overall consumer price index increased by 0.4%, driven by higher energy expenses. Meanwhile, the core CPI, excluding food and energy costs, saw a 0.3% uptick in September, aligning with anticipated levels. Stocks fell and treasury yields surged after the hotter-than-expected CPI and moved still higher after an auction of 30-year bonds drew weak demand.
🏦 Individual stocks
- Birkenstock's IPO flops: Birkenstock stock prices tanked 13% after a $1.48b IPO. Birkenstock's debut is the worst first-day showing for a US listing of $1b or more in over 2 years.
- ExxonMobil $60b purchase: ExxonMobil announced it will purchase shale giant Pioneer Natural Resources for just under $60b in horizontal integration deal. This signals that ExxonMobil is not too concerned about the White House’s push to reduce emissions and invest in climate-friendly energy or the International Energy Agency’s prediction of a decline in demand for fossil fuels by 2030.
- Microsoft completes Activision Blizzard acquisition: Microsoft finally completed its purchase of Activision Blizzard yesterday after nearly two years of sparring with antitrust regulators
🇸🇬 Singapore related
- Singapore's Q3 GDP growth exceeded expectations: GDP for the July-September period grew 0.7% year on year - a faster than expected pace boosted by tourism and with manufacturing returning to a small quarter-on-quarter growth
- MAS maintains status quo on SGD policy, anticipates 2023 growth in the lower range of the forecast: Singapore’s central bank on Friday kept its monetary policy settings unchanged, as it balances between the risks of a slower-than-expected economic recovery and a possible flare-up of inflation. The MAS also said it expects growth in 2023 to come in at the lower half of the 0.5 per cent to 1.5 per cent official forecast range.
