WEEKLY | MULTIFACTOR GEOPOLITICAL RISK
Your weekly summary with the most important news for your investments, in this edition:
Geopolitical risks
Letter from Jamie Dimon
Dollar appreciation
The previous week, in which the main U.S. stock indexes declined an average of -1.5% and the 10-year sovereign yield rose to 4.53% (+13 basis points), the series of events that increased the degree of stock market volatility were sequential, starting with:
The release last Monday, April 8, of JP Morgan Chase CEO Jamie Dimon's annual letter, noting that the global inflationary and geopolitical scenario were still very complex.
The previous month's inflation figures, released mid-week, came in above inflation expectations and rising.
The Federal Reserve (FED), also mid-week, released the minutes of its last monetary policy meeting arguing that "confidence" is still lacking before proceeding with possible rate cuts.
The results of the country's main financial institutions were accompanied by cautious comments from their management.
Towards the end of the week Iran began to mobilize armament towards its borders, which was reflected in the first directly concerted militarized attack by Iran against Israel last Saturday night with the dispatch of a combination of drones and missiles that exceeded 300 attacks.
This week market players will be focused on:
The warlike course of action that the Israeli government of Benjamin Netanyahu could take against Iran laying the groundwork for a wider regional war in the Middle East.
The release of last month's industrial production and retail sales, giving us a glimpse of first quarter economic growth after the uptick in inflation in March.
A series of verbal interventions by various Fed representatives seeking to anchor inflation expectations, accompanied by the publication of the Beige Book mid-week, all in anticipation of the next monetary policy meeting to be held by the Fed on April 30 and May 1, where it will have no choice but to address the impact of oil prices on inflation, a taboo topic in previous meetings and speeches.
Quarterly results from companies including Bank of America, CSX, Goldman Sachs, JNJ, Morgan Stanley, Netflix and United Airlines among many others, marking the first week of earnings releases from the companies that make up the S&P 500.
Below, I will manage a snapshot of the events that shook the US stock market in the week leading to the dollar appreciating globally with movements in the euro dollar parity towards €1.065, yen dollar towards ¥153.3 and the Brazilian real moving sharply towards BR$5.12 to the dollar. For those who choose to read the letters from top business leaders including Warren Buffett (Berkshire Hathaway) and Larry Flink (BlackRock) among others, Jamie Dimon's (JP Morgan Chase) is not to be missed. This one was lengthy (almost 60 pages) but the following commentary essentially sums up the tone of the letter:
Despite the unsettling outlook, including last year's regional bank turbulence, the U.S. economy remains resilient, with consumers still spending, and markets currently expecting a soft landing. Importantly, the economy is being driven by large amounts of past government deficit spending and stimulus. There is also a growing need to increase spending as we continue to transition to a greener economy, restructure global supply chains, increase military spending, and combat rising health care costs. This could lead to more persistent inflation and higher rates than markets expect. In addition, there are downside risks to watch. Quantitative tightening is draining over $900 billion in liquidity from the system annually, and we have never really experienced the full effect of quantitative tightening on this scale. In addition, the ongoing wars in Ukraine and the Middle East continue to have the potential to disrupt energy and food markets, migration, and military and economic relations, in addition to their terrible human cost. These significant and somewhat unprecedented forces cause us to remain cautious.
Mid-week we saw headline inflation climb to 3.5% (from 3.2%) and core inflation, which excludes food and energy prices, was 3.8% (unchanged), both figures above market expectations, thus demonstrating that the price of oil, which has been climbing since the beginning of the year, has a significant impact on these data. This resulted in the Open Committee in its minutes mentioning:
Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was declining sustainably to 2 percent.
As a result, expectations for a rate cut at the June meeting immediately plummeted as there would not be enough confidence to do so.
On the corporate front, the results of major financial institutions (BlackRock, Citigroup, JP Morgan Chase and Wells Fargo) came in line with or above market expectations. However, they cited some of the risks outlined by Dimon as factors that could impact their results for the remainder of the year including persistent inflation and war risk.
As for the geopolitical risk in the Middle East, even though 99% of the missiles sent by Iran were intercepted, it is very unlikely that Israel will stand idly by, as the Biden administration would have asked the Israeli government to do. The attack was frontal in that last Friday President Biden himself told the Iranian government that it "should not proceed". However, this was the Iranian government's message to the United Nations after the attack:
The matter can be considered concluded. However, if the Israeli regime makes another mistake, Iran's response will be considerably more severe. It is a conflict between Iran and the outlaw Israeli regime, from which the United States must stay away!.
Thereby indirectly calling, for some reason or another, for the United States to finally have to take a formal stance in the region after having been dancing around its pseudo-support for Israel and its strong anti-war criticism for appeasing Hamas.
In conclusion, the multifactorial geopolitical risk in the Middle East, which could have an impact on the price of oil, could derail the Fed's de-inflationary path as a baseline scenario entering the summer and pre-presidential election period in the United States.
THIS WEEK
Monday (April 15)
Quarterly Reports
Avid Bioservices, Inc.
Economic Reports
Retail Monthly Sales Change Report
NY Empire State Manufacturing Index Report
Retail Annual Sales Change Report
Tuesday (April 16)
Quarterly Reports
WD-40 Company
Neogen Corporation
PriceSmart, Inc.
Tilray Brands, Inc.
SMART Global Holdings, Inc.
Economic Reports
Preliminary Building Permits Report
Manufacturing Production Monthly Change Report
Manufacturing Production Annual Change Report
Wednesday (April 17)
Quarterly Reports
Applied Digital Corporation
GoldMining Inc.
Pure Cycle Corporation
Delta Air Lines, Inc.
CHS Inc
Thursday (April 18)
Quarterly Reports
J P Morgan Chase & Co
Wells Fargo & Company
Citigroup Inc.
BlackRock, Inc.
State Street Corporation
Progressive Corporation (The)
Economic Reports
Philadelphia FED Manufacturing Index Report
Initial Unemployment Assistance Report
Friday (April 19)
Quarterly Reports
NextDecade Corporation
Byrna Technologies, Inc.
Envoy Medical, Inc
Elicio Therapeutics, Inc.
Fury Gold Mines Limited
Now you have more information about your investments. See you next week with more news.
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