Roach- Rising tensions in the Middle East will make financial markets see-saw and turbulent

Economist David Roche has raised concerns about the increasing volatility in financial markets due to escalating conflicts in the Middle East. In an interview with CNBC, Roche, a senior research fellow at the Yale Law School’s Paul Tsai China Center, discussed the precarious position facing international financial markets as they navigate rising tensions in the region alongside growing unemployment in the United States.

On October 1, the situation escalated when Iran launched missile attacks on Israel, prompting the Israel Defense Forces to respond with strikes against Hezbollah targets in Lebanon. This recent surge in conflict has added an unsettling dynamic to the markets.

Roche emphasized that as global central banks begin to ease monetary policies, the conflicts in the Middle East could introduce further inflation risks, contributing to uncertainty in financial markets. “We might see substantial market turbulence, with fluctuations becoming increasingly pronounced,” he warned.

He pointed out that the rising tensions in the Middle East could impact oil prices and inflation, urging central banks to rethink their approach toward further easing. Iran, a significant player in the oil market, is the third largest oil producer within the Organization of the Petroleum Exporting Countries (OPEC), with daily production nearing 4 million barrels. Stanley, chief economist at Banco Sabadell, noted that the long-term effects of the current situation on inflation remain uncertain, stating that heightened tensions could have “significant impacts” on the oil market.

Zheng Wangqing, regional investment head at UBS Asset Management, discussed the importance of market safety measures, highlighting the influence of Israel’s response. “If Israel chooses a measured response that avoids significant casualties in Iran, we could see stabilization in the Middle East, which might reduce the risk of a broader regional conflict,” he observed.

Investors are also keeping a close eye on the U.S. September employment report, scheduled for release this Friday. Economists expect the unemployment rate to hold steady at 4.2%. If the rate is higher than anticipated, it could prompt the Federal Reserve to accelerate rate cuts to ensure a soft landing for the economy.

Another concern impacting the U.S. economy is the ongoing strikes at major East Coast ports, which commenced on October 1. These strikes threaten to disrupt global supply chains, and the longer they persist, the more significant the damage to the economy could become.