"We Could Be Looking At A War Economy That Nobody Today Has Ever Experienced Before"

The events of the last week are shocking, if not entirely surprising. The world now holds its breath as Israel prepares for a full-scale ground invasion of Gaza.

Who can blame markets for being jittery?

  • Brent crude futures closed up more than 5% on Friday, peeking back above U$90/bbl for the first time in almost a fortnight.
  • US 10y yields were down more than 8bps at 4.61% and the long bond was down more than 10bps to 4.75%.
  • The S&P500 closed down 22 points with losses being led by the high beta information technology sector and consumer discretionary, while defensives and energy performed well.

What are the implications for financial markets of this worst case scenario?

  • It it’s probably a combination of inflation, financial repression, scarcity and a long-overdue reversal of multiple expansion.

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