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Geopolitical uncertainty upends strong finish to week for markets

After ending last week on a positive note, equity markets are getting off to a shaky start this week as geopolitical concerns moved into focus. The Hamas militant group unleased a surprise attack on Israel over the weekend, killing hundreds of Israelis. In response, Israel struck sites in the Palestinian exclave of Gaza with hundreds more dying in the largest outbreak of violence in the region in decades.

Shane Strowmatt, LGT
Reading time
5 minutes
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Oil prices shot up on concerns that the tension could widen into a broader conflict in the Middle East. Brent crude was trading up around 5% Monday morning. The spike comes after oil prices retreated last week from price levels that were seen as possibly contributing to another round of inflation. Safe-haven assets such as gold also received a boost from the uncertain situation.

Crucial for markets will be the reaction of other international players and whether the violence can be contained locally. While Hamas ally Iran congratulated Hamas on the success of the attack, it denied being involved. The response of the US will also be relevant after first reports emerged over the weekend of US citizens dying in the violence.

In the Asia-Pacific region, stock markets were mostly down, but with several key markets closed on Monday. In China, the Shanghai Composite was trading 0.7% lower after coming back from a weeklong holiday last week. Hong Kong’s market was closed on Monday due to a typhoon warning and Japanese and Korean markets were closed due to a public holiday on Monday. Australia’s S&P/ASX was trading up 0.2%, ending a five-day losing streak.

Data out of the US to end last week painted a picture of a strong labour market with job growth coming in much higher than market expectations in September. US nonfarm payrolls increased by 336,000 in September, about 100,000 more than in August and well above analyst estimates. The high job growth is another indication that the US labour market is still quite strong despite high interest rates. The unemployment rate came in at a still fairly low level of 3.8%. A sign that the Federal Reserve’s aggressive interest rate hikes may be working could be found in the wage data. Employers were receiving less increases than in the past months with hourly earnings up a modest 0.2% in September on the month or 4.2% year on year.

Recently, positive labour market data has been seen by the market as a sign that the Fed could continue with rate hikes soon or keep rates high for longer, causing stocks to fall. But in New York on Friday, the strong labour market data wasn’t able to hold equities down. The Dow Jones Industrial gained 0.9% and the S&P 500 increased 1.2%. The Nasdaq-100 jumped 1.7%.

In Europe, some positive data came out of Germany, which has so far been struggling this year to create economic growth. Industrial orders in Germany rose in August by 3.9% compared to the previous month. The outlook for the manufacturing sector remains bleak, however, as the most recent Manufacturing Purchasing Managers’ Index for Germany came in at 39.6 points, far below the 50-level, which signals contraction.

Unemployment in Switzerland remained at a very low level with the unemployment quota staying at 2%. That’s slightly higher than the 1.9% in September of last year.

Corporate news in focus: OMV Q3 revenue.

Economic data in focus: The 2023 annual meetings of the World Bank / International Monetary Fund begin in Marrakesh (lasting until Sunday), German industrial production (08:00 CET), Sentix investor confidence (10:30).


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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