Weekly | Global Geopolitical Instability

Your weekly summary with the most important news for your investments:

Results of the main stock market indexes.
General analysis of geopolitical movements and their repercussions on the economy.
Movements on the corporate front.

The first week of October started with an outflow of funds from the US equity and fixed income markets with a faster than expected reversal in equities.

Appetite for technology allowed the Nasdaq to return +1.6% for the week.
The S&P 500 +0.5%.
The Dow declined -0.3% dragged down by the fall in the energy sector following the collapse in the price of oil, which fell to US$83 a barrel (-8.8%). This adjustment was the result of the Biden administration's move to sell oil from strategic reserves entering the fourth quarter of the year.

However, the appetite for sovereign fixed income did not suffer the same fate as the 10-year sovereign rate climbed above 4.8% (+23 basis points) not only because of the robust September employment data released last Friday, but also because wheat and corn prices climbed almost +5%, setting the stage for a future hike in the Federal Reserve's (FED) monetary policy rate. This week will not only be marked by the beginning of a war in the Middle East where Israel was attacked from the Gaza Strip during the weekend by Hamas, leaving more than 700 dead in that country, on Sunday Lebanon was added and through the media it is alleged that it was Iran who plotted the attack that included more than 5 thousand missiles on Israeli territory. All this while in the United States a power vacuum was created after the Speaker of the House of Representatives, Kevin McCarthy, was voted out of office, leaving for the first time in its history this political body without a president and without a replacement for the time being.

This week, in which the sovereign fixed income market will not be trading today due to the national holiday, will have a potpourri of events starting with the following:

Verbal intervention by a number of Fed members before and after the release of the Open Committee minutes of the last monetary policy meeting at mid-week.
The previous month's inflation data will be published, where headline inflation is expected to have remained at 3.7% while core inflation, which excludes food and energy prices, is expected to have eased to 4.1% (from 4.3%). This in an environment where the economy surprisingly generated 336 thousand new jobs in September, surpassing all market expectations. The unemployment rate remained at 3.8% and wage inflation eased marginally to 4.2% (from 4.3%).
Friday will formally kick off the quarterly earnings season with the release of figures from U.S. financial companies including BlackRock, Citigroup, JP Morgan Chase, PNC and Wells Fargo. Also reporting later in the week will be Delta and Pepsi.

For now, according to Factset, sales of S&P 500 companies are estimated to have expanded +1.7% and earnings mismatched -0.3% from the third quarter of the previous year. It is important to note that the price-earnings ratio has been misaligned, following the U.S. stock market decline in August and September, to 17.5 times, bringing it in line with the 10-year average.

But I will go into more detail about the geopolitical events of the last few days as they are all intertwined. There is no doubt that the planning by armed Hamas militants from the Gaza Strip against Israel did not occur in a single day, because the attack was systematic and included more than 22 fronts of attack. Evidently, Israel, given the always tense relationship with its neighbors, could not stand idly by and had to counterattack by declaring a state of war which, according to Prime Minister Benjamin Netanyahu, will be systematic and prolonged, as we have already seen in the last few hours. Moreover, the timing of the attack not only came hand in hand with a US power vacuum, with the dismissal of McCarthy, but also came at a time when the price of oil suddenly plummeted from almost US$95 a barrel to US$82 a barrel in a couple of days. Something that for Russia and the oil producing countries, mainly in the Middle East, has an economic impact. Meanwhile, Iran, which was allegedly involved in the planning of the events, had already been in a series of troubles since in mid-September Germany, France and England extended economic sanctions against the country on the understanding that it was not complying with its duties to reduce its search for nuclear weapons, putting the Biden administration in a more than uncomfortable situation and straining the Iranian-American relationship.

But here is something I have been arguing since the United States untimely left Afghanistan in August 2021.

The basic premise is that if you look at a world map, you will realize that Afghanistan is the center of Asia where the United States, having a robust military presence, could attack or counterattack China, Iran and Russia if these three powers decided to attack their neighbors. This is because an attack from Afghanistan would generate two war fronts for any of these countries. However, with the departure of the United States from Afghanistan, the three countries, China, Russia and Iran, do not have to look back to forge war fronts. This is why Russia felt extremely comfortable with attacking Ukraine and Iran leading an attack on Israel. Evidently, China has not yet proceeded with invading Taiwan, but it may only be a matter of time. But the one that has now been given two war fronts is the United States, which, with a divided and temporarily headless Congress, will have to fund Israel and Ukraine. Part of the problem in the US Congress, which led to the power struggle that ended McCarthy's presidency, was the prolonged funding to Ukraine, which will now have to include not only funding to Israel, but also military support in a region that historically has not welcomed US military forces.

In conclusion, even though the main market risk will remain on the Fed's decision, we now have external geopolitical perimeter shocks, which could derail oil and agricultural commodity prices, further complicating the issuing institution.

This Week

Monday (October 09)

Quarterly Reports

Applied Digital Corporation
Saratoga Investment Corp

Economic Reports

Remarks by Dallas Fed President Lorie Logan
Speech by Fed Board Vice Chairman for Oversight Michael Barr
Speech by Board of Governors Chairman Philip Jefferson

Tuesday (October 10)

Quarterly Reports

Pepsico, Inc.
Neogen Corporation
AZZ Inc.
VOXX International Corporation
TSR, Inc.

Economic Reports

Red Book Monthly Change Report
Wholesale Inventories Monthly Inventory Change Report
Speech by Fed Governor Christopher Waller
Speech by Minneapolis Fed President Neel Kashkari
Speech by San Francisco Fed President Mary Daly

Wednesday (October 11)

Quarterly Reports

Wipro Limited
Winmark Corporation
Karooooo Ltd.
Loop Industries, Inc.
Richardson Electronics, Ltd.

Economic Reports

Speech by Fed Governor Michelle Bowman
Commodity Price Index Report
Federal Open Market Committee Minutes
Speech by Atlanta Fed President Raphael Bostic
Speech by Fed Governor Christopher Waller

Thursday (October 12)

Quarterly Reports

Infosys Limited
Fastenal Company
Delta Air Lines, Inc.
Walgreens Boots Alliance, Inc.
Domino's Pizza Inc.
Commercial Metals Company

Economic Reports

Monthly Change in Inflation Report.
Monthly Change in Core Inflation Report.
Annual Change in Inflation Report.
Core Inflation Annual Change Report.

Friday (October 13)

Quarterly Reports

UnitedHealth Group Incorporated
J P Morgan Chase & Co.
BlackRock, Inc.
Citigroup Inc.
Wells Fargo & Company

Economic Reports

Preliminary consumer sentiment report, Michigan.

Now you have more information about your investments. See you next week with more news.

*This is an illustrative example and does not represent an investment recommendation.