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As Israel-Hamas war rages, Wall Street's top financiers sound gloomy note at 'Davos in the Desert' – The Globe and Mail

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General view of the opening session of Saudi Arabia’s Future Investment Initiative conference in Riyadh, Saudi Arabia, on Oct. 24.SAUDI PRESS AGENCY/Reuters

Wall Street’s top financiers struck a pessimistic tone about the global economy at a flagship gathering in Saudi Arabia aimed at deal brokering, as a violent conflict between Israel and Hamas that has killed thousands of people unfolds.

The annual event is typically used by attendees to build relationships with some of Saudi Arabia’s biggest companies and its $778-billion sovereign wealth fund, drawn by the promise of deals as the kingdom seeks to wean its economy off oil.

But an escalation between Islamist group Hamas and Israel into a broader conflict overshadowed the event dubbed “Davos in the Desert”, a nod to the annual gathering of world leaders and corporate bosses in the Swiss Alps.

JPMorgan Chase Chief Executive Jamie Dimon encouraged Saudi Arabia not to abandon a United States-led initiative for the kingdom to establish official relations with Israel.

“Despite what happened in Israel, I urge you all to keep up that effort,” Dimon told the Future Investment Initiative (FII) in Riyadh. “It is the only way to get there with some leadership from Saudi Arabia, for the folks of the Middle East.”

Saudi Arabia is putting U.S.-backed plans to normalise ties with Israel on ice, two sources familiar with Riyadh’s thinking said, signalling a rapid rethinking of its foreign policy.

Geopolitical tensions heightened by the Middle East conflict pose the biggest threat to the world economy, World Bank President Ajay Banga said.

“There is so much going on in the world and geopolitics in the wars that you’re seeing and what just happened recently in Israel and Gaza. At the end of the day, when you put all this together, I think the impact on economic development is even more serious,” Banga said.

Although the globe’s top financiers dwelt little on the conflict, speaking instead about topics such as artificial intelligence, the economic fallout of war combined with record debts created a bleak backdrop.

“There’s no question if these things are not resolved, it probably means more global terrorism, which means more insecurity, which means society is going to be fearful … and … we see contractions in our economies,” BlackRock Chairman and CEO Laurence Fink said.

Fink was flanked on a panel at FII by bank CEOs including JPMorgan’s Dimon, Goldman Sachs’ David Solomon, and Citi’s Jane Fraser. They spoke about topics including women in the workplace but also the implications of rising interest rates.

Ray Dalio, founder of hedge fund Bridgewater Associates, said he was pessimistic.

“If you take the time horizon, the monetary policies that we’re going to see and so on, will have greater effects on the world,” Dalio said. “And you look at the world gaps, so it’s difficult to be optimistic on that.”

HSBC Group CEO Noel Quinn also warned of the perils of heavy government debts. “I’m concerned about a tipping point on fiscal deficits,” he said. “When it comes, it will come fast and I think there are a number of economies in the world where there could be a tipping point and it will hit hard.”

‘UNRELENTING’

The remarks come as Israel’s military said it was preparing for “unrelenting attacks” to dismantle Hamas. Former U.S. President Barack Obama warned that “any Israeli military strategy that ignores the human costs could ultimately backfire.”

The conflict could upset the stability of the Middle East just as regional powerhouse Saudi Arabia pours hundreds of billions of dollars into a vast economic transformation plan.

But the finance chiefs were mostly focused on business.

The last year has seen Saudi Arabia spend billions on companies, from sports to gaming to aviation. This year, Saudi Telecom Corp took a near 10% stake in Spain’s Telefonica.

“While today’s world seems uncertain, we continue with our mandate to inspire … the future of business and future-proof our societies to create a more stable and resilient world order,” Yasser al-Rumayyan, governor of Saudi Arabia’s sovereign Public Investment Fund, told the conference.

Goldman Sachs’ Salomon addressed the potential for more dealmaking.

“Over time, scale matters enormously in the competitive nature of global businesses,” he said.

Stephen Schwarzman, co-founder, chairman & CEO of the Blackstone Group, flagged the threat to investors in office buildings, now often empty in the wake of the pandemic.

“Say you have 30% unused space in office buildings, that means those office buildings are not survivable as economic entities. So that’s going to have a very bad ending,” Schwarzman said.

More than 5,000 people registered to attend this year’s Future Investment Initiative and only a handful withdrew due to current events.

Saudi Crown Prince Mohammed bin Salman has sought to lift the kingdom’s profile to secure investment and trade alliances, seeking dialogue with former regional foes, and pivoting to Eastern partners amid strains with U.S. President Joe Biden’s administration. This year’s forum is meant to demonstrate that eastward shift. There will be 70 speakers from Asia, of whom 40 will be Chinese, FII Institute CEO Richard Attias told Reuters.

Saudi Arabia is halfway through an ambitious economic transformation plan – Vision 2030 – to wean the economy off oil by creating new industries, generate jobs for citizens, and to lure foreign capital and talent.

FII is partially aimed at attracting investment to fund this, a daunting task as total foreign investment flows in this year’s second quarter were down.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

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Breaking Business News Canada

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.

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