Is geopolitics a bigger worry for markets than rate hikes?

Following the Russia-Ukraine crisis early this year, global tensions across several other regions are currently on a rise.  

For instance, North Korea has reportedly fired at least one ballistic missile toward its eastern sea as part of its weapons tests that have raised tensions in the region.

Meanwhile, Saudi Arabia has shared intelligence with the US about an imminent attack on the kingdom by Iran.

These fresh geo-political worries, analysts warn, could prove to be a bigger concern for the markets over the next few months rather than central bank policy actions.

Gaurang Shah, Chief Investment Strategist, Geojit Financial Services says, conflict between Iran & Saudi Arabia is another worry. Economic implication, energy costs may soar. Impact on food supplies. Geopolitics the 'numero uno' worry for markets.

Sharing similar views, G Chokkalingam, chief investment officer at Equinomics Research says, major world economies cannot afford a slowdown now. As it is, the world economy is reeling under the impact of the Russia-Ukraine war and tensions between China and Taiwan. Any further escalation will impact growth and markets that have not yet fully priced in this possibility.”

Meanwhile, on the policy front, the US Federal Reserve delivered a 75 basis point rate hike on Wednesday, cautioning against prematurely pausing the tightening cycle, which dented investor sentiment.

Mark Matthews, Head of Research for Asia, Julius Baer says, markets have not liked the US Fed's tone. Fed doesn’t like it when the market is in control; it likes to be in the driver's seat. Markets can move higher – ex-technology stocks – if inflation woes recede.

However, analysts now expect the US central bank to slow down its pace of hikes going forward.

Philip Marey, a senior US strategist at Rabobank International, said he expects a 50 bps hike in December, followed by two hikes of 25 bps each in February and March, which would take the top of the target range to 5%.

According to Marey, inflation is persistent and it will take time to bring it back down toward the US Fed’s 2% target. The FOMC will remain on hold for the remainder of 2023 after reaching the terminal rate.

That said, Aditya Birla Fashion, Cipla, Britannia, Marico, TVS Motor and Escorts will be on the Street’s radar today ahead of their September 2022 quarter earnings. Foreign investor flow and the level of the rupee will also guide market sentiment.