Risk Returns

All eyes turn to the Middle East as conflict in Yemen stands as a stark reminder of the one sided nature of the geo-political risks to asset markets. Higher oil and gold prices, and lower share markets, are the inevitable result of the return of risk as the potential for armed conflict escalates.

Just as the former USSR and the USA played out their enmity in third party theatres of war, Yemen is shaping up as a proxy for the bigger players. The Saudi associated Sunnis are hardening their stance against the Iranian backed Shi’ites, and Yemen is the loser. Global investors are increasingly nervous, especially in light of multiple share market peaks. Futures markets are pointing to a benign start to the trading day for most markets, and gains in Japan, but this could reverse as investors re-assess the possible. Any movement of ground troops would likely see renewed selling.

Energy shares may receive further support today after yesterday’s trend defying rise. China will release a read on industrial profits, but the regional focus will likely be Japan. Inflation data and retail sales numbers for February will speak directly the success or otherwise of the “three arrows” stimulus program, and the likelihood of further central bank and government action.