Global equities rose marginally on Friday, but oil rose as the crisis in the Red Sea region threatened to grow, although slightly hotter US inflation data did not change investors' conviction that interest rates may soon begin to fall.
The MSCI All-World index increased 0.3%, following a rebound in Europe, where the STOXX 600 surged about 1%, fueled in part by a rise in shares of aerospace and defense companies, where the sector index reached a new high.
(Photo : by ANGELA WEISS/AFP via Getty Images)Global equities rose marginally on Friday, but oil rose as the crisis in the Red Sea region threatened to grow, although slightly hotter US inflation data did not change investors' conviction that interest rates may soon begin to fall.
Stock futures in the United States remained unchanged, but government bond rates dipped, showing investors' desire for safe-haven assets.
Oil jumped as much as 2.6% after the US and Britain announced air and sea raids on Houthi military targets in Yemen in reaction to the group's attacks on ships in the Red Sea, a dramatic regional broadening of the Israel-Hamas conflict in Gaza.
Brent futures witnessed a 2.45% uptick, reaching $79.25 per barrel, while U.S. West Texas Intermediate (WTI) crude recorded a 2.6% rise, reaching $73.86. The surge in oil prices comes against the backdrop of geopolitical tensions, particularly in regions impacting oil production and supply.
Analysts, such as Chris Scicluna, the head of economic research at Daiwa Capital Markets, noted the measured response in oil prices. Despite the increase, Brent remains below the $80 per barrel threshold. The fixed income market's reaction suggests a nuanced perspective, with concerns about potential impacts on economic growth but a lack of significant worry from an inflationary standpoint.
Scicluna pointed out that the situation prompted a slight flight to quality, indicating a cautious approach among investors. However, he emphasized that the current developments are not deemed as a game-changer. The oil market's response reflects a delicate balance between geopolitical factors, economic considerations, and inflationary concerns, highlighting the nuanced nature of global market dynamics.
The U.S. dollar saw a marginal increase against a basket of major currencies, while gold, considered a safe-haven asset during times of uncertainty, experienced a 0.5% uptick, reaching $2,040 per ounce. The market witnessed heightened risk aversion among investors, prompting movements toward traditional safe havens.
Analysts, including Khoon Goh, Head of Asia Research at ANZ in Singapore, highlighted the potential for shifts in safe-haven preferences if the geopolitical situation undergoes significant escalation. In such scenarios, U.S. Treasuries and currencies like the Japanese yen and Swiss franc are likely to benefit, reflecting the traditional flight-to-safety observed in times of increased uncertainty.
The measured uptick in the dollar and the rise in gold prices indicate a cautious market sentiment, with investors closely monitoring geopolitical developments for potential impacts on global financial markets. The current stability in other safe-haven currencies, like the Swiss franc, suggests a watchful stance, with the potential for changes depending on the evolution of the geopolitical landscape.
Overnight in Asia, Japan's Nikkei extended its spectacular gains this year, rising 1.5% to a new 34-year high, aided by strong earnings from Fast Retailing Co, the parent company of apparel brand Uniqlo.
The Chinese consumer price index fell 0.3% year on year in December, indicating that the country's economic recovery remained sluggish. Separate trade figures, however, revealed that exports increased faster than predicted last month, while imports increased.
Consumer prices in the United States climbed more than expected in December, according to data released on Thursday, with a widely watched core indicator coming in slightly higher than predicted.
However, the report's contents revealed that pressures increased in certain sections of the consumer market, such as energy and the cost of used automobiles, as well as other seasonal variables that should subside, according to Jefferies analyst Mohit Kumar.
