Great Game – The 3 biggest geopolitical risks for markets right now
Welcome to this week’s edition of the Great Game. We give you our take on the hottest geopolitical topics of relevance to your portfolio. This week, we cover the 3 biggest geopolitical risks for markets right now and what to look our for.
Risk to shipping?
As we discussed last week, the global powers are scrambling to deploy warships around the Middle East. This is of course a question of positioning themselves for upcoming peace talks as well as a symbolic move to signal your global relevance. This week, we got confirmation of the US moving a further Carrier Strike Group (the “Dwight D. Eisenhower”) into the Eastern Mediterranean as well as the Bataan Amphibious Readiness Group into the Red Sea. This is a massive naval deployment that underscores just how seriously the US takes this conflict. The US is basically surrounding the Middle East with amphibious assault capabilities. This increases the risk for incidents impacting global supply chains – both of dry bulk, containers, LNG etc. These risks could add fuel to commodity prices amidst a potential US restocking cycle and plays well into the theme covered in our most recent Portfolio Watch.
Funding Two Wars
With the election of Mike Johnson to Speaker of the House, the US political system can finally turn its attention towards renewed appropriations talks. The first bulletin on Mike Johnson’s strategy came out yesterday, suggesting that House Republicans will split up funding for the Ukraine and Israel Wars. The Biden Administration has pushed for a $106 billion package that would include aid for Israel, Ukraine and border security. The Republicans have countered this with a suggestion of funding the Israel War by siphoning funding from the Inflation Reduction Act that’s currently running wild. As Andreas Steno discussed on Sunday, federal spending is paramount to holding off the impending recession and addressing the IRA seems like an astute political move by the Republicans – even if IRA spending is heavily skewed towards Republican states.
The risk here is that