Geopolitical Risks May Be Biggest Threat To Markets, BoE Says

Geopolitical risks may be the biggest threat to global markets, the Bank of England (BoE) warned on Wednesday.

"Global vulnerabilities remain material, as does uncertainty around the geopolitical environment," the BoE said. “Markets remain susceptible to a sharp correction.”

The BoE published its Financial Policy Committee Record a day after Iran launched at least 180 ballistic missiles at Israel. The barrage of missiles has increased fears of wider war in the Middle East. 

A map showing the sirens sounded across Israel as the barrage began Source: msn.com 

Concerns about an escalation in Mideast violence increased after Israel killed Hezbollah's leader Hassan Nasrallah in airstrikes on September 27. 

JPMorgan JPM CEO Jamie Dimon warned on September 24 that there was "a lot of war taking place right now."

"My caution is all geopolitics," he said in an interview with CNBC TV18 at a JPM conference in Mumbai.

Global Markets React To Geopolitical Risks

European markets and global oil prices reacted quickly to the ballistic missile attack. 

The Euro Area Stoxx 600 continued its retreat from its record high, trading flat today. Germany's DAX40 pulled back from its record level, falling 0.55% today and continuing its 1.8% retreat a high of 19,473.

Brent crude oil rose 3.19% after the attack on Tuesday, reversing most of its September slump.

The World Bank said in April severe disruption in oil supplies could push Brent oil prices above $100 per barrel. 

"The geopolitically-driven increases in oil prices continue this morning," Mohamed El-Erian, Queens' College Cambridge president, wrote on X. 

"Because there has been no actual disruption," oil prices haven’t spiked, El-Erian, who is also a Bloomberg Opinion columnist, wrote.

A further conflagration could drive up prices of natural gas, fertilizers, and food, the World Bank said at the time.

"No oil and gas facilities have been damaged and logistics keep working," Paul Sullivan, a John Hopkins University Lecturer, said.

"Risk premia for oil and oil transport could increase significantly if there is a directed attack" on infrastructure, he added.

Geopolitical Developments Worry ECB Officials

But European Central Bank (ECB) officials are concerned about the spike in geopolitical uncertainty. A spike in energy prices could reverse the slowdown in inflation reported across much of Europe. 

Euro area annual inflation slowed to 1.8% in September from 2.2% in August, the EU statistical office said on Tuesday. 

"We are facing huge uncertainty – not least in view of the many prevailing economic, financial and geopolitical risks,"  Luis de Guindos, Vice-President of the ECB, said the same day.  

The ECB official spoke at the 5th joint ECB, Bank of Canada and Federal Reserve Bank of New York Conference.

De Guindos said in Riga today that the economic revival in the euro area is likely to gain momentum.

He expressed optimism that faster growth could be achieved following a disappointing second quarter. However, he warned that risks in the bloc are still "tilted to the downside.

Geopolitical Uncertainty Main Risk 

A BoE survey conducted in late July and early August echoed the prevailing concerns about geopolitical uncertainty. 

The BoE found that 93% of the 55 banks that responded placed geopolitical risk as the biggest concern. That was the highest level recorded in the survey which goes back to 2008.

The elevated geopolitical uncertainty could place "further pressure on sovereign debt levels and borrowing costs, ” the BoE said today.

The UK’s central bank pointed to "structural trends, such as demographics and climate change," as factors that could undermine markets. 

Sharp market corrections "could affect the cost and availability of credit to UK households and businesses," it said. 

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