Uncertainty prevails in the global community as the risk of the crisis spreading beyond the borders of Israel and Gaza could lead to the military involvement of other countries as well. It is clear to everyone that two American aircraft carriers are not outside Israel to help it against Hamas, but to prevent attacks from other countries, such as Iran, maybe even Turkey, which expresses itself in very harsh language against Israel and the USA now. Putin’s references to the possibility of Russian missiles hitting targets in the Middle East are not accidental either.
World peace is hanging by a thread and every day there are indications that some terrorist organizations want to cut this thread. And of course this does not allow for inaction in the rest of the world. As no one is able to know or predict with relative certainty how the situation will develop, uncertainty affects all economic decisions and causes large fluctuations in the markets.
Every news depending on whether it is good (if it helps peace) or bad (if it exacerbates the crisis) affects all values. From the price of oil and all energy prices to the prices of stocks, bonds and gold.
The more conservative investors look for safe havens – which is mainly gold, but for some also government bonds – while the riskier ones look for opportunities in very fast buying and selling to make daily profits.
The bottom line is that the risk for all investments is rising and this is reflected in the VIX index which is the indicator of Wall Street volatility and which has risen by 40% in the last month. Its daily variation reached 15% a few days ago. This means that fluctuations are intense and will likely remain intense until we see how this crisis will play out.
The price of gold (moving upwards but with a modest increase of 7% since the Hamas attack to date) shows the willingness of investors for “safe havens”.
At the same time, US bond prices are falling because it is predicted that dollar interest rates will remain high for a long time and thus their yields are growing. When the US 10-year bond is yielding over 5%, there are many who would give up overvalued stocks to buy it. And so the variation in one value affects the course of the other values.
Under these conditions of uncertainty, private investors and businesses take a defensive stance, while states and financial authorities postpone serious decisions for the future, that is, until they have a clearer picture of the size of the crisis and its effects on economies.
All the policies that have been deployed to deal with the economic impact of the pandemic must remain for the time being in Europe’s arsenal to be available if needed.
In short, they will not have to take the decisions they were planning now, to tighten the European economy monetarily or fiscally, because we do not know what lies ahead and what money we will need to deal with it.
Finally, another issue that heightens the uncertainty is the concern about individual jihadist attacks in Europe. Last Tuesday, 6 airports in France were closed after there were bomb threats, while in Brussels an Islamist killed two Swedes. The concern relates to the possibility that there may be radical Islamists, who may suddenly become aggressive, among the many Muslims living in the EU.
As uncertainty lingers and does not appear to be abating anytime soon, the outlook for economies is equally uncertain. The good scenarios that existed until today for the growth rates are overshadowed by the fear of unpredictable geopolitical developments and sharp fluctuations will be the daily life of the markets depending on the interpretation of the news of the day.
