Israel's Response to Attack: A Year Later
Remembering the Attack
Today, Israel commemorates the first anniversary of the assault by Hamas. Approximately 1,200 lives were lost on that fateful day, and about 250 individuals were taken hostage, some of whom are still being held captive. The subsequent attack on Gaza resulted in the death of tens of thousands of people, as per Palestinian officials. The world continues to grapple with the fear of an escalating regional conflict. This morning, BBC reported that Israel's incursions into Lebanon seem to have intensified. Israel's defense minister was quoted yesterday saying that the country's response to the Iranian missile attack on Israel last week would be "in the manner of our choosing, at the time and place of our choosing," adding that "at the moment, everything is on the table."
Market Reactions
As the market anticipates Israel's response to the Iranian missile strike last week, oil prices have slightly dipped below the highs of last Friday. The surge in Brent prices last week was the biggest since January 2023, due to worries about Iran's involvement in the conflict and potential supply issues. Reports suggest that Iran has redirected oil shipments to China due to Western sanctions, which means that any impact on the oil price from the reopening of Chinese markets tomorrow will be closely monitored. Chinese markets have been closed for a week-long holiday since October 1. Despite further indications of escalation in the Middle East conflict, risk appetite was boosted on Friday by signs of continued resilience in the US economy.
US Economic Resilience
The US labor report released on Friday dismissed fears of a US recession and diminished hopes that the Fed could follow up September's rate cut with another 50 bps move next month. US equity indices ended in the green on Friday, though futures have dipped this morning. The Bureau of Labour Statistics reported that 254K jobs were created in September, significantly above the 150K market consensus. Furthermore, the unemployment rate decreased to 4.1%, while average earnings reported a stronger than expected 0.4% m/m increase. This earnings component is noteworthy, considering Fed Chair Powell's August statement that the labor market is unlikely to be a source of elevated inflationary pressure anytime soon. This was interpreted by the market as a shift in policymakers' focus from inflation risks to the labor component of the Fed's dual mandate.
Fed Officials' View on Inflation
However, not all Fed officials agree with Powell's view on inflation. Bowman recently remarked that price pressures remain "uncomfortably above the committee's 2% goal," while Barken stated that it was too early to declare victory on inflation. Indeed, if last week's rise in oil prices is sustained, it could pose a new inflation risk. However, the reopening of East Coast and Gulf Coast ports on Friday (at least for now) eliminates another potential inflation shock.
Impact on Treasury Yields and USD
Following Friday's payrolls report, both Treasury yields and the USD rose to their highest levels since August, as market expectations shifted to a more moderate pace of Fed easing in the coming months. The combination of economic and geopolitical news made it challenging to accurately determine how much of the move may have been related to safe-haven demand. Nevertheless, the market is approaching the next round of US data with increased confidence about the relative strength of the US economy.
Bottom Line
As we reflect on the past year since the attack by Hamas, we see a world grappling with geopolitical tensions and economic uncertainties. Yet, amidst these challenges, signs of resilience and strength are evident, particularly in the US economy. What are your thoughts on the ongoing geopolitical conflicts and their impact on the global economy? Do you think the resilience of the US economy can withstand these pressures? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
