According to a report from The Guardian, Saudi Arabia aims to extend its military operations against Iran-aligned Houthis for attacking the Najran province, which is located in its southern region, and Yemeni government troops. It should be noted that Saudi Arabia is a supporter of the internationally recognized Yemeni government.
In a separate attack early on Friday, a Saudi official accused the Houthis of indiscriminately shelling civilian areas in Saudi Arabia, injuring 11 civilians, including a four-year-old child. Maj General Turki al-Maliki, spokesperson for the Saudi-led military coalition supporting Yemen’s government, said the coalition would continue taking all necessary measures to protect civilians.
Escalating conflicts inside the Middle East region are prompting fears of a prolonged oil supply disruption, which could keep global inflation expectations de-anchored.
Market reaction
As of writing, the WTI Oil price holds onto its Thursday’s strong recovery move near $77.50.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
