Optimism amid geopolitical risks

The conflict between Hamas and Israel presents a significant geopolitical risk to oil markets. US Secretary of State Antony Blinken met with key Middle Eastern leaders at a summit in Jordan, where he reiterated US support for “humanitarian pauses.” While the Israel-Hamas situation has pushed up safe-haven assets like gold, crypto, and oil prices, there’s no clear trend in any of these assets yet.

Market resilience

Interestingly, the Fed’s pause in interest rate hikes came just after the European Central Bank’s decision to hold off on hiking rates last week. This led some investors to believe that the worst of the rate hikes is behind. Stocks gained strength believing that bond yields have peaked too. Recent sessions have seen the S&P 500 and Nasdaq Composite recovering. The S&P 500 climbed up its 200-DMA at around 4,250.

Chinese stock market outlook

This week, the Chinese stocks too have opened with cautious optimism as Beijing introduced new economic stimulus measures, providing a boost to investor sentiment following a prolonged period of selloffs. The positive momentum extended to the broader market, lifting metal prices and Hong Kong property shares on news of reduced home purchase taxes. However, there remains skepticism among traders about the sustainability of this rally in the face of ongoing economic challenges and uncertainties.

Chinese economy and property market in turmoil

Chinese property developer Evergrande owes more than $325bn (£269bn). That’s more than Russia’s entire national debt, and forms the Achilles heel of China’s economy. For two years, Evergrande has been lurching from crisis to crisis, repeatedly failing to make payments on its multi-billion dollar loans. Meanwhile the IEA said in its World Energy Outlook 2023 report released on Tuesday that China is reaching an inflection point and its total energy demand is likely to peak around the middle of this decade.

Geopolitical Concerns

Despite concerns over easing Fed policies, traders are now banking on the high probability that the Federal Reserve will not pursue further interest rate hikes. However geopolitical tensions, particularly in the Middle East remain.

The ongoing Israeli-Hamas conflict is heightening investor concerns about rising geopolitical risks in financial markets and if this conflict draws in other countries, especially Iran. As long as the war remains relatively localized, investors are largely keeping an eye on the conflict and a finger on the Sell button.

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