Update on the latest conflict situation in the Middle East and inflation status (April 22, 2024)
✅ Analysts believe the attacks between Israel and Iran are unlikely to escalate further.
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On the morning of 19 April, there was a reported explosion in Isfahan, Iran's third largest city and location of a nuclear facility. Various news outlets reported it as likely a retaliation by Israel, following over 300 drones Iran launched at Israel on 13 April (Iran claimed this was in retaliation for an Israeli attack on an Iranian embassy in Syria, resulting in the death of a high-ranking Iranian officer). However, neither party has officially held a press conference regarding the recent incidents in Iran. The Iranian Foreign Minister did not mention the Israeli attack, only stating it was an insignificant situation, and flights in major Iranian cities, which were canceled on the morning of 19 April, have resumed normal operations.
From the above events, analysts believe these mutual attacks are likely just symbolic, and both sides are not interested in escalating violence further. However, the current volatile oil prices might also contribute to keeping U.S. inflation from falling to the Fed’s target at 2%. Prior to Thailand's Songkran holiday, U.S. general inflation in March increased to 3.5% year-over-year (YoY), higher than February's 3.2%. Meanwhile, core inflation, excluding food and energy, remained steady at 3.8% compared to the previous month. This persistently high inflation level has led the market to adjust its view that the U.S. Federal Reserve may only reduce policy rates once or twice this year, from previous estimates of three times. This assessment has resulted in the yield on U.S. 10-year treasury bonds rising from 4.0%-4.2% in March to 4.6% as of 19 April. This rise in interest rates, combined with the unrest in the Middle East, has led to a -5.1% adjustment in the U.S. stock market (S&P 500) over the past month (data as of 19 April, in USD).
The recent portfolio recommendation to increase the weight of foreign fixed income towards the end of last year can enhance returns due to high interest rates. Although foreign stock prices are relatively expensive, the continued good performance of listed companies supports that returns could still be favorable this year (global stock index returns from the beginning of the year to 19 April 2024, stand at 2.2% in USD). Given the unrest in various regions and high inflation levels, we believe that diversifying risks across various assets through recommended portfolios can effectively reduce investment volatility and lead to successful long-term investment objectives.
Source : Bloomberg, FMLP
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