In this weeks blog post we have feature the recent article from RBC Global Asset Management regarding the Conflict in the Middle East that start on October 7th. We feel this article provides a good summary of event as of Oct 10th.
RBC Global Asset Management
Investors Insight
Conflict in the Middle East
October 2023
On Saturday, October 7, Hamas fighters launched a surprise attack on Israel from the Gaza Strip, setting off thousands of rockets, killing civilians and taking hostages in the worst incursion Israel has experienced in decades. In response, Israel has declared a state of war and launched its own rocket attacks on Hamas. An Israeli ground response is expected in the coming days. The situation will continue to evolve rapidly and the events that have unfolded have been tremendously consequential for all the lives impacted.
Background information
The Middle East has regularly engaged in conflict over the past 75 years, with many of these events involving Israel and its neighbours. Throughout, relations with the Palestinians located in Gaza and the West Bank have been especially precarious.
The timing of the Hamas attacks may have been motivated in part by an Israel distracted and divided by proposed changes to its judicial system, and in part as a ploy to undermine negotiations between Israel and longtime foe Saudi Arabia to normalize relations.
What happens next?
In response to the attacks, Israel declared a state of war. Hundreds of thousands of reservists in the Israeli army have been called up and moved toward the Gaza border. Food, water and electricity to the Gaza Strip have all been cut off, and Israel has launched its own retaliatory airborne attacks. Meanwhile, Israel’s major political parties are negotiating the formation of a united government, increasing the country’s capacity to act quickly and forcefully during this period of crisis.
Internationally, the U.S. government and many other nations have condemned the attacks and affirmed their support for Israel. The U.S. military has moved some of its military assets closer to the Middle East, pledging support for the nation. Effectively, this serves to dissuade other parties from opportunistically targeting Israel while this war plays out. Meanwhile, Iran has vocally shown their support for the Hamas attacks. While the conflict currently remains isolated to Israel and the Hamas militants in Gaza, it is a top geopolitical concern on the global stage because of the risk it could extend beyond Palestinian and Israeli borders. In addition, this throws the idea of a more united Middle East into question.
How have markets reacted?
The price of oil rose by nearly $4, from $82 up towards $86 in the immediate aftermath. U.S. government bond yields, which had been on the rise until late last week, dropped 10-15 basis points across the curve. While it’s possible this is in part a move towards safe haven assets, the rebound in equities and an ultimate decline in the U.S. dollar against a basket of currencies suggest market movements could have had more to do with government bonds rallying from oversold conditions rather than in response to these events.
It is possible that as the conflict continues to develop, markets may experience some volatility, particularly if fears grow surrounding additional country involvement or a greater impact on the supply of oil. While the risk of contagion is one we’ll continue to closely monitor, we expect that key narratives such as the risk of recession, path of central bank policy rates, and earnings growth potential will continue to be key, provided the tail risk from the recent military conflict does not materialize.
Publication date: October 10, 2023 This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only, as of the date noted only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information contained in this document. Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information. This document may contain forward-looking statements about a fund or general economic factors which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.
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