Middle East conflict drives gold price and yields

The conflict in the Middle East weighed on the stock markets and drove up yields on US government and corporate bonds in particular. As a safe haven, gold was in high demand and the price of a troy ounce rose by more than seven per cent.

The international stock markets fell for the most part in October. The German share index DAX and the broad European index Stoxx Europe 600 lost -3.75% and -3.68% respectively. In the USA, the S&P 500 fell by -2.17% and the Hong Kong Hang Seng Index lost -3.83%. Overall, global equities, as measured by the MSCI World, lost -2.80% - all index figures in euro terms.

October was mainly characterised by the Hamas attack on Israel at the beginning of the month. From a market perspective, the main concern was whether this could lead to a major escalation and there was a significant reaction in several assets. Gold was in demand as a safe haven and the gold price rose from USD 1,848.63 to USD 1,983.88/troz in October, gaining 7.32%. An additional negative factor for equities was the mixed reporting season so far, the results of which have hardly convinced market participants.

Furthermore, equities have become a significant competitor due to rising bond yields. 10-year US government bonds tested the 5 per cent mark over the course of the month and yielded 4.93% at the end of the month, 36 basis points higher than at the end of September. This further narrowed the yield gap to 2-year US government bonds. These yielded only 4 basis points higher at 5.09%. Yields on high-quality US corporate bonds rose by 31 basis points to 6.35%, and the strongest gains were made by high-yield US corporate bonds, which ended the month 61 basis points higher at 9.49%.

The US economy grew even more strongly than expected in the third quarter, namely by 4.9% compared to the previous quarter. This was due to increased private consumption on the one hand and higher government spending on the other. However, the latter is likely to be lower in the coming months. In the USA, inflation remained unchanged at 3.7% in September (compared to the same month of the previous year). Although the inflation rate did not fall as expected, there is no need to raise interest rates in the US for the time being. The interest rate plateau is likely to remain in place unless the US economy continues to grow at this rate and the US Federal Reserve is likely to continue to monitor the development of price and wage data for the time being.

A different picture emerged in the eurozone. Inflation here fell more sharply than expected from 4.3% in September to 2.9% in October, mainly due to the fall in energy and food prices compared to the same month last year. The majority of market participants no longer expect the European Central Bank to raise interest rates, especially as the eurozone economy contracted slightly by -0.1% in the third quarter compared to the previous quarter. In addition, the purchasing managers' indices in the eurozone fell further in October to 47.8 points for the services sector and 43.0 points for the manufacturing sector, putting them deep in recessionary territory. This makes a recession in the eurozone increasingly likely.

Unlike in the USA, yields on 10-year German government bonds fell slightly by 3 basis points to 2.81%, and the yield on 2-year German government bonds also fell by 19 basis points to 3.02%. The Chinese economy exceeded expectations in the third quarter and grew by 1.3% compared to the previous quarter. However, the purchasing managers' indices unexpectedly deteriorated by one point each in October to 49.5 in the manufacturing sector and 50.6 for services. It therefore remains to be seen whether the growth target of around 5% for the year as a whole can still be achieved.


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