Markets are "right" to shrug off recent Trump trade news, Capital Economics says
Investing.com -- Markets are once again shrugging off geopolitical uncertainty, raising the question, will it be different this time?
According to Deutsche Bank, the answer is: not yet.
Despite a dramatic escalation in the Middle East, including Israeli strikes on Iranian nuclear sites, the global market response has been modest.
The reaction has so far been limited to commodities and regional equities.
Oil jumped more than 7% on Friday, gold hit a record high, and Middle Eastern equities fell. But elsewhere, investors remained calm.
The MSCI World Index slipped just over 1% after setting a record the previous day.
U.S. high-yield credit spreads widened by just 2 basis points. Inflation expectations, while up on the day, were still lower over the week.
So what would cause geopolitics to have a wider market impact?
“Historically, it’s only been when it’s affected macro variables like growth and inflation,” Deutsche Bank strategist Henry Allen wrote in a note.
“But so far at least, we’re yet to see that.”
That’s in sharp contrast to shocks such as the 1970s oil embargo, the Gulf War in 1990, or Russia’s invasion of Ukraine in 2022, all of which triggered inflation spikes and forced central banks to respond.
Today, oil prices remain below their 2024 average, and markets are not pricing in a broader economic shock.
Still, risks are mounting. Analyst pointed to two potential flashpoints: the looming July 9 deadline on U.S. tariffs, and the chance of a deeper oil supply disruption. Either could rekindle inflation fears and challenge expectations for interest rate cuts.