Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

Tensions in Middle East to test markets, ahead of week dominated by central bank news

Geopolitical tensions in the Middle East looks as though as they’ve inflamed further, following the (alleged) Iranian-backed attack on a key oil facility in Saudi Arabia.

Middle East tensions to test market sentiment

The week will begin on a slightly nervous note this morning. Geopolitical tensions in the Middle East looks as though as they’ve inflamed further, following the (alleged) Iranian-backed attack on a key oil facility in Saudi Arabia. Naturally, the eye will move straight to the oil price to judge the attack’s material impacts. One assumes we’ll see a pop in oil prices early today, as the major disruption to global production and supply is priced-in. But the greater curiosity will be in whether this event leads a significant lift in volatility in broader markets, given the heightened risk of war in the Middle East.

Searching for the next Black Swan

This is where the things get quite interesting. What’s the risk of a violent turn in global geopolitics? What would the impact be to the global economy if such a thing were to occur? It appears that, when compared to economics and monetary policy, at least up to this point, the multitude of international political ructions have been considered of tertiary importance by market participants. This could prove, in time, to be very naïve. Markets are no doubt looking for the big risk to catalyse the next recession. Their attention, however, has been preoccupied with trade-wars and central banks. Perhaps a major military conflict is this generations’ circling “Black Swan”.

Is a ‘negative supply shock’ the greatest risk to markets?

It’s not a fringe idea, by any means, that the most significant risk to global markets is a highly disruptive war. Esteemed economist Nouriel Roubini recently suggested as much. A “negative supply shock” brought about by a conflagration in any one of the many geopolitical conflicts across the globe makes it “easy to imagine how today’s situation could lead to a full-scale implosion of the open global trading system”. Such an event would be potentially disastrous to a global economy already slowing down – and worse still, its consequences would likely be resistant to any fiscal and monetary stimulus plied by policymakers.

Markets caught in the tides of political change

A dour way to begin the week. And it must be said that the base case in markets isn’t for a devastating human conflict somewhere on the planet. But it’s still worth noting, because for the first time, presumably, since the cold war, the status quo in global markets is being shaken-up. And judging by how global leaders are responding to this dynamic, there is some degree of scepticism that the disruption can be appropriately managed. These are novel problems, in a way, after all. And as Marshall McLuhan said, when it comes to profound change, politics: “offers yesterday's answers to today's questions.”

Politics and monetary policy to dominate news-flow

So, with the trade-war, Brexit and now greater tensions in the middle east, politics could drive the narrative in markets to begin the week. It adds to the plate of major news stories before market participants in the next 5-days. Domestically and abroad, the fundamentals of the week’s trade will be centred around central bank policy making. After the ECB’s perplexing meeting last week, attention turns now to the US Fed, Bank of Japan, Bank of England, and Swiss National Bank, which all meet this week. At home, the RBA’s minutes from its last meeting are released, before all-important jobs data is published on Thursday.

Event risk likely to keep bullish impulses subdued

This plethora of event-risk, and the swirling of fast-moving information in financial markets currently, could keep risk-appetite subdued to begin the week. In the face of uncertainty, keeping the chips off the table will probably be the broad approach from market participants. This comes despite what was actually quite a reasonable conclusion to last week’s trade. Stocks finished the week quite flat. However, the data received was at least a little heartening. The focus was on the US consumer. Retail Sales and Consumer Sentiment figures were printed, and on balance, delivered solid-enough readings, easing very marginally some level of concern about the risk of an imminent US recession.

Price action points to improved fundamental outlook

Of course, good economic data, in the short-term, does little for liquidity hungry stock markets, so Wall Street closed practically flat, and that’s setting up the ASX 200 for a marginally negative start today, according to SPI Futures. But the better barometers of global economic health are showing signs of marginally better sentiment. Bond yields continued to edge higher on Friday, pushing gold prices down further below $1500. The Japanese Yen is still falling, too. The VIX is making a foray into the 13 mark, showing investors are primed for risk-taking, provided some free air. This is not discounting, of course, the attack over the weekend in Saudi Arabia.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

See your opportunity?

Seize it now. Trade over 17,000 markets on our award-winning platform, with low spreads on indices, shares, commodities and more.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Plan your trading week

Get the week’s market-moving news sent directly to your inbox every Sunday. The Week Ahead gives you a full calendar of upcoming economic events, as well as commentary from our expert analysts on the key markets to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of spread betting and CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.