This week, investors’ attention was focused on the tragic events unfolding in the Middle East. Our thoughts and prayers are with all of those affected by this terrible violence.
In times of increased uncertainty, investors normally show an inclination for what they perceive to be safe haven assets. These typically include government bonds, gold, non-cyclical stocks (like pharmaceuticals or utilities), and overall from a currency perspective, a preference for the dollar. This again proved largely correct with markets initially reacting on Monday with a spike in the price of gold and, given the location close to many of the world’s largest producers, a rise in the price of oil.
As the week progressed, despite the events on the ground sadly deteriorating further, the markets focused on reassuring comments from US Federal Reserve officials that pushed Treasury yields lower as interest rate expectations fell. Atlanta Federal Reserve Bank President Raphael Bostic said on Tuesday that he didn’t see the need to raise interest rates any further and also commented that he wasn’t expecting the US to enter a recession in the near future.
Stocks sensitive to China, such as mining groups and some luxury brands, also saw gains with the news that the Chinese government may be planning to release a fresh round of stimulus aimed at boosting economic growth. Having started the year with a post-COVID reopening optimism, China has continued to disappoint as the year progresses. Worries over the indebtedness of some of the country’s largest property companies, a reduction in consumer confidence (evidenced by an increased saving rate), and a large increase in youth unemployment have all contributed towards a sluggish environment for economic growth. The approach so far from policy makers has been modest, with moderate interest rate cuts and a loosening of some mortgage restrictions. Investors will be hoping that this rumoured new stimulus will be a more aggressive attempt at kick-starting the economy.
John Naylor, Chartered FCSI – Head of Investment Committee