In recent years, often the financial ones seen by June’s leg friday are a good time to work from home. Not now.
As news was extended about Israeli air attacks in Iran, Wall Street and London merchants, not to mention that Asia, returned to their offices to prepare for the inevitable storm.
It materialized quickly: oil prices increased (initially by around 13 percent), shares prices fell (initially 1 percent in the US.) And the dollar reversed its recent fall down. And although these movements were deleted in part later, volatility is likely to remain high; Particularly since the president of the United States, Donald Trump, warned that without an agreement, the next “already planned attacks” by Israel will be “even more brutal.”
So what should investors think? There are good (ISH) and bad news. The first revolves around the oil issue. At first glance, it seems reasonable to assume that high oil prices will be an unpleasant blow for global growth.
Because while “only” producers of around 1.7 million barrels of oil per day, about 2 percent of the global total, the real threat is that if an additional conflict closes the hormuz narrow, it will undermine the shipment. In fact, Ing Barings hopes that in an extreme scenario, in the worst case, a long block prices of the narrow oil could double to a $ 150 record at the end of this year.
The history of the twentieth century has shown how harmful the oil price jumps can be. And with the World Bank that has just reduced its perspective for global growth by almost half a percentage of a percentage point to 2.3 percent, the lowest since 2008, now is a bad time for another shock.
While Trump said Friday that attacks would be possible as “best for the market”, repercussions create short -term stress. High oil prices under Trump’s equipment plan to reduce inflation. It will also make it difficult for the Federal Reserve to reduce rates, given the risks of stagflation. For Europe, it is the same as worse.
But this is the good news, or at least the least depressing problem: one of the most notable but often false developments in recent decades is that the so -called “oil intensity” of global economies, which is the amount or the growing to feed.
In 1975, for example, the World Bank calculates that 0.12 “tons of equivalent oil” (TOE) were needed to produce $ 1,000 or GDP. By 2022, however, that was only 0.05, due to the spread of renewable energy sources, such as solar energy and increased industrial efficiency.
Therefore, we do not face the economy of his grandfather or his father, to cite the motto. Choques such as the Israeli attack do not need to be as devastating as before; Or not if the main transmission channel of this clash is oil.
However, the bad news is that oil is No The only transmission channel at this time; Instead, I suspect that the most important channel is investor psychology.
Because what the Israeli strikes have done is intense the perception that we are not only harassed by the increase in geopolitical instability, but also a change in spirit of the spirit. A vicious competition for hegemonic power seems to be displacing even the fig tree sheet of international regulations and laws.
Or, to quote Trump again, events are not being promoted by a sense of universal law, but by the question of who has “letters” (or not) of power; Israel feels free to bomb Iran using their military “letters”, regardless of UN standards.
That is disorienting, if not scary, for investors collected to predict the future with Neat economic models. After all, in the neoliberal era, those models generally excluded disorderly policy, and assumed that the rule of law was consistent, in the national and international sphere. “The traditional world order, in which the economy formed politics, has become headless,” as Pimco told its clients this week: “Politics [are] Now driving the economy. ”
So what should investors do? An essential step is to realize that, although the old economic models are useful, now they are also dangerously incomplete.
Thirdly, we must recognize that in a world where “the fragmentation of commercial and security alliances is becoming a powerful source of volatility”, to quote Pimco again, it is essential to diversify the portfolios, take a long vision of the events and a deep breath.
then, if you work in finance, do not plan many Fridays this summer. That is not just because of the increase in the Middle East tensions; The very high debt, monetary dislocation, interrupted trade and a president of the United States decided to rebuild the global order, all current risks as well. Volatility is now a characteristic,