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Astute Market Overview - 18th October 2023

Welcome to the latest Astute Market Overview.

Over the period there have been concerning announcements regarding attacks and warfare in Israel and Gaza, in a substantial escalation of tensions in the region. Whilst it is difficult to remove the human cost of such tragic events, we trust you will understand that, for the purpose of this video, we’ll turn to the broader impacts on the global economy.

We saw a small jump in the price of oil, although the price still sits lower than September highs. The jump was muted, largely given that Israel aren’t an oil producer themselves. The speculative increase was likely attributed to the concern that Iran could be drawn into the conflict. If this were to be the case, one of the significant risks includes heightened restrictions on Iranian oil exports. However, it isn’t clear how much leverage the west would have in order to enforce these sanctions on other countries, meaning that Iran could potentially still export to, say China, limiting the impact on global oil supply.

There has been a slightly larger price move on European Natural Gas; whilst Israel has shut down a major gas field due to safety concerns, a large contributing factor to the price rise is an altogether different issue – strike disputes in Chevron’s LNG facilities in Australia.

The spike to both commodity prices is much smaller than when Russia invaded Ukraine. When we look at the fundamentals, the combination of high European gas storage levels and an autumn that has been mild thus far mean that we are unlikely to see gas problems this winter.

Of course we are stepping down the rabbit hole of what ifs, but where we currently stand today, there has been a very muted market impact, and, given that Israel (and the Middle East generally) don’t have a huge economy, this is unlikely to change. Therefore, whilst the news is concerning, from a market perspective, it is unlikely to have a significant impact unless the conflict spreads across the region.

Turning to other news, it has been a fairly flat period for many key markets since our last overview.

In the UK, the most recent data point we had was the release of UK CPI released this morning. The headline figure came in at 6.7% for September, which is the same level as was measured in August. Whilst broadly, economists had forecast a slight drop to the figure, the fact that inflation didn’t decrease last month is unlikely to worry neither the Bank of England nor markets.

Whilst the oil price kept the level up, the drop in the energy price cap this October is likely to be reducing some of the pressure behind inflation ahead of the next reading.

In China, in addition to National Holiday Day celebrations, we saw the release of CPI inflation for the region. The headline figure came in at 0%, showing prices flat lining in September 2023 when compared to September 2022. Whilst this stagnation of prices is not healthy for the region, the cost of Chinese goods sold overseas holding steady will likely play a role in bringing down global inflation.

In the US, the latest Consumer Prices Index release showed inflation remained stable. Minutes from the latest Federal Open Market Committee (which took place a month ago) showed that the committee are performing a balancing act, being both concerned about the risks of overtightening, i.e. holding rates too high for too long, and the risk of not doing enough to bring inflation down.

Some of the data we have to look forward to includes: digesting Eurozone CPI, UK retail sales, US Gross Domestic Product and US PCE index (the Federal Reserve’s preferred inflation measure).

See you next time.

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