As the new month begins so do a new level of worries for many. Last night Israel started with a limited ground operation in Lebanon. The USA and other countries are aware of the risk of escalation into a more complex situation compared to Gaza. This has resulted in the USA, UK and other allies placing additional resources nearby for the evacuation of their citizens along with assistance to Israel if needed.
On the same day, the largest port workers' strike in the USA was also witnessed. This is not only a problem for the local economy, which has a risk of a slowdown but also global economy. The longer it stays the larger the impact on the supply chain and China's exports would also slow down that are already a worry. It is estimated that every day the strike goes on it will cost $ 5Bn per day and given the US elections in a month, it is unlikely to resolve before it.
From the economy and central bank's perspective, it is an important month as most of them look for additional data to decide the path ahead. Most of the estimates whether related to interest rates, economy and company results are at an optimistic level. The risk is if there are disappointments then adjustment to them will be stronger and the reaction by financial markets will be more volatile.
The seasonality factor of financial markets this month has a higher volatility factor, especially for equity and commodity markets. This would be critical to navigate as the events unfold in the coming weeks. A moment of caution is better than a moment of adventure in such times given the losses and margin call hedge funds are facing because of China equity shorts.
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