This year’s most spectacular and reliable bull market has been in geopolitical crises. Even in this most tumultuous of environments, though, virtually no one had nuclear-armed India and Pakistan coming to literal blows on their Bingo card. This isn’t just true of the folks in the trading pits in New York and London but also in Mumbai and Karachi. Suddenly, dustups between China and US seem less scary, especially with Xi Jinping’s negotiators set to sit down with Donald Trump’s later this week. Yet gold’s record-breaking rally looks less speculative by the moment as tensions flare up in every corner of the globe (chart).
This year’s most spectacular and reliable bull market has been in geopolitical crises. Even in this most tumultuous of environments, though, virtually no one had nuclear-armed India and Pakistan coming to literal blows on their Bingo card. This isn’t just true of the folks in the trading pits in New York and London but also in Mumbai and Karachi. Suddenly, dustups between China and US seem less scary, especially with Xi Jinping’s negotiators set to sit down with Donald Trump’s later this week. Yet gold’s record-breaking rally looks less speculative by the moment as tensions flare up in every corner of the globe (chart).
Consider the following:
(1) India/Pakistan. When “#IndiaPakistanWar” is trending on social media, you know global markets have got issues. Relations between New Delhi and Islamabad are never exactly calm. But India launching missile strikes on multiple targets in Pakistan raises the stakes for already jittery world markets. Targets included Pakistan-administered Kashmir, the site of last month’s militant attack on tourists in the Indian-controlled portion.
(2) China protests. Despite airstrikes in South Asia, financial markets are holding their ground, partly on optimism about US-China trade talks. Inside China, though, President Xi is struggling with a rare side effect of tariffs: angry protests. News of irate factory workers demanding back pay dramatizes Goldman Sachs’ estimate that as many as 20 million Mainland jobs are directly dependent on US-bound shipments.
As it turns out, Xi may have an easier time hiding trade war pain abroad than at home. Wednesday’s rate cut by the People’s Bank of China suggests that the sense of alarm is growing. The Chinese government's 10-year bond yield continues to signal deflation (chart). (Might China invade Taiwan to distract the citizenry from domestic economic woes now that Trump has played his wildcard of prohibitive tariffs?)
(3) Trump’s trade deals. Over in Trump World, meanwhile, excitement about trade negotiations seems to be waning. Ostensibly, Trump’s one-man tariffs arms race aimed to have trading partners beating down the Oval Office door to make a deal. Now, oddly, the “Art of the Deal” President says the US doesn’t need to sign any. He said so yesterday. Go figure.
(4) Russia/Ukraine. One deal that Trump did make recently was more of an offer that Ukraine’s President Volodymyr Zelensky couldn’t refuse. Faced with a choice between getting fleeced by an ally or losing a war to Russia, Zelensky opted for the former. But since the deal to give Washington access to some of the war-torn country's natural resources didn’t include security guarantees, Russia’s Ukraine adventure will continue to wreak havoc.
(5) OPEC+. Oil, of course, is a subject of global intrigue following a surprising move by OPEC+ to increase production for a second consecutive month. This year’s bull market in geopolitical surprises seems no match for fears that Trump's Tariff Turmoil will end in recession, capping oil prices. At least one thing is clear: The jobs of US oil producers suddenly got a lot harder when OPEC+ widened the spigot (chart). On the other hand, low oil prices could further weaken Russia.
(6) Houthis/Israel/Iran. Another wildcard is what’s behind Trump’s about-face on the Houthis in Yemen. Trump says the Iran-aligned group, which US forces attacked in March, “capitulated.” Thus, Trump says, “we will stop the bombings.” Only those still on the infamous Signal app chat probably know the full story behind Trump’s pivot. Or the extent to which Israel will follow suit. Israel has been hitting the Houthis, too. Will it also stop, following Trump’s lead? Or might Benjamin Netanyahu attack Iran directly?
If tensions in the Red Sea, or myriad other hotspots, heat up, the only thing that might be in shorter supply than safe havens is sleep.
