Geopolitical uncertainty, including a large-scale conventional war in Eastern Europe that appears to be set to continue for years and a volatile global situation is impacting the markets, from oil and commodities to currencies.
While for financial markets Q4 is statistically in positive territory, there are some elements that may influence how stock prices will evolve in the last three months of the year, writes eToro analyst for Romania, Bogdan Maioreanu.
Stock markets are now in a vice grip of oil prices and the high bond yields. The S&P 500 crashed 5% in September and nearly 4% in the third quarter, taking a “summer vacation” after a 7 month rally. Equity volatility has risen from lows and only oil and the US dollar have been the major assets on the rise.
Brent oil prices reached $95 in September only to close on Friday below $85. But the tense situation in the Middle East is also making the markets nervous, adding uncertainty on how it may influence the oil prices. Oil markets already moved, with Brent oil jumping Monday over 3% exceeding 87 per barrel.
Forex markets also reacted to rising geopolitical uncertainties by strengthening the dollar signalling some outflows to the safe haven of the US currency. Gold prices also opened up more than 1% reaching $1853 per ounce. The increasing uncertainty might make capital flow to the US Treasury Bonds safe haven but a confirmation will come on Tuesday because the US has the Columbus Day holiday.
The increased volatility in the global geo-politics was also noticed by the Romanian investors, an international conflict being the third cause for concern in the last three months of the year after a global and local recession, according to the eToro Retail Investor Beat survey.
Statistically, October is a positive month for the global stock markets. In the last over 50 years, 15 of the largest global markets returned 0.9% on average in October and 1.2% per month on average for November and December. But this October starts with very strong US job creation data worrying investors that the Fed will continue its current high interest policy longer, with high oil prices and increasing global bond yields, raising worries about an economic slowdown.
All this is not very good news for the companies valuations. But the investors are also focused on the start of the new earnings report season this week hoping for a potential positive catalyst for markets, marking the end of the nine-month US earnings recession.
Decrease in tax revenue not currently possible for Romanian economy
