Geopolitics (Iran/Israel), 6 relevant risk barometersGeopolitics is in the spotlight this week, along with the FED's monetary policy decision. Geopolitical news is covered by the general media, so there's no need here to repeat information that's accessible to everyone. We therefore propose to review our selection of stock market barometers which, in our opinion, best measure the intensity of geopolitical risk.
1) Oil and natural gas prices
Naturally, oil price trends are the main barometer of the geopolitical risk of the current confrontation between Israel and Iran. Although Iran accounts for just 3% of the world's oil supply, the region itself represents 20%, and above all there is a risk of closure of the Strait of Hormuz, through which 25% of the world's oil supply passes. Technical analysis of the oil price is therefore the primary tool for measuring the intensity of current geopolitical tensions. The price of oil recently returned to the former technical support of $65, but there is no major bullish technical signal as long as the price of US crude oil remains below resistance at $80. We must therefore keep a close eye on the $80 threshold for US oil.
2) The trend of the S&P 500 index, the benchmark of Western finance
The equity market is the second barometer of geopolitical risk that we offer. The most important thing is to select the stock indices that best represent the perception of geopolitical tensions. We believe that the S&P 500 future contract does this job well, as it is the most widely traded stock market futures index in terms of volume by global high finance.
A few days ago, we published a detailed graphical analysis of the S&P500 index, which you can consult by clicking on the image below.
3) Trends on the main stock markets in the Near and Middle East
Equity markets in the Near and Middle East are excellent indicators of the current perception of geopolitical tensions between Iran and Israel. We suggest you take a look at the Saudi Arabian Stock Exchange (Tadawul), the region's largest in terms of market capitalization. Naturally, you should also follow the trend of the Tel Aviv Stock Exchange's flagship index, the TA 35, as well as that of the Egyptian stock market. These markets have the advantage of being open on Sundays, and are often a good early indicator of trends in Asia and Europe for Monday morning.
4) The trend of the US dollar (DXY) on the foreign exchange market (Forex) and of gold on the commodities market
On the floating foreign exchange market (FX), it is the US dollar that plays to the full its safe-haven aspect. In the event of geopolitical tensions spiraling out of control, it would make a strong bullish reversal. This week, however, the US dollar will be under the influence of the FED.
So it's best to trust gold's trend as a barometer of geopolitical risk. Geopolitics is not necessarily the dominant fundamental factor, but rather the dynamics of interest rates and the US dollar.
5) The TRUFLATION trend
If current geopolitical tensions were to become a major global shock, international trade would be disrupted, and transport difficulties would lead to a sharp rise in prices, particularly for raw materials and industrial goods. This potential price rise would then be rapidly reflected in TRUFLATION, the benchmark for real-time price dynamics in the USA.
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