We begin this week’s newsletter by examining the geopolitical forecast for the fourth quarter of 2024, focusing on potential developments around the world. Next, we turn our focus to the recent stimulus injected into China’s economy, and whether or not it will be enough to turn China’s prospects around. We then shift to a discussion of topics to be on the lookout for in the near future, including a potential housing price super-cycle, the prospects for global trade regarding the American presidential election, and a potential artificial intelligence market crash. Finally, we conclude with an analysis of the state of the Middle East and the expanding conflict in the region.

Geopolitical Prospects for Q4, 2024

Fourth-Quarter 2024 Geopolitical Forecast

RANE

Global trends, as of Q4 FY 2024, suggest that the US presidential election will significantly shape the international landscape. A win for Vice President Kamala Harris is expected to maintain continuity in U.S. foreign policy, while a Trump victory would prompt major shifts, particularly concerning Ukraine, China, and global trade. Lower interest rates in the US and Europe are projected to aid emerging economies, although fiscal austerity measures remain a threat to social stability. Meanwhile, the COP29 climate summit in Azerbaijan will center around climate finance, but disagreements among major contributors could limit the scope of any deal. OPEC+ is likely to maintain production cuts amid weak oil prices, affecting Gulf countries’ economic plans.

In the Middle East, the Gaza conflict is poised to continue, with little chance for ceasefire, while increased tensions between Israel, Hezbollah, and Iran could lead to wider war in the Middle East. In Europe, defense and green strategies are key priorities for the new European Commission, while trade disputes with China loom. The Russia-Ukraine conflict is expected to intensify, and Asia-Pacific tensions remain high as US-China relations worsen. In the Americas, Mexico’s new president, Claudia Sheinbaum, will have to address the anti-business policies implemented by her predecessor, while Brazil, under President Lula, is seeking closer ties with China, and Argentina’s macroeconomic conditions are showing signs of stabilization. Lastly, Sub-Saharan Africa is facing economic and political uncertainty, highlighted by Ethiopia’s decision to free-float its currency, the spread of Mpox disrupting supply chains, and political instability in countries like Ghana, Senegal, and Tanzania—all of which hinder regional progress.

Impact of China’s Stimulus

Xi Jinping’s belated stimulus has reset the mood in Chinese markets

The Economist

Chinese stocks are rallying. The economy may need a bigger boost.

Nikkei

The Global Implications of China’s Stimulus Package

Shang-Jen Wei, Project Syndicate

The announcement of China’s belated stimulus package has sparked an extraordinary surge in Chinese stock markets, marking the largest rally in over 15 years. Retail investors, buoyed by a mix of liquidity injections, mortgage-rate cuts, and an 800 billion yuan ($114 billion) infusion into the stock market, have driven indices to rise by over 25%. The excitement surrounding this policy shift, which included unprecedented measures such as the People’s Bank of China (PBoC) providing institutional investors with 500 billion yuan to buy stocks, signals a profound shift in China’s economic management under Xi Jinping’s leadership. Social media has been ablaze with stories of retail traders making small fortunes, while sentiment has soared, despite ongoing concerns about the country’s broader economic struggles, including industrial profit declines and a still-sputtering property market. Investors hope that this new wave of government support will break the cycle of pessimism that has dogged China’s post-pandemic recovery.

Despite the market’s dramatic rally, skepticism persists over the long-term impact of these measures, especially given the backdrop of contracting manufacturing activity and the fragile real estate sector. While the rise in stock prices is being celebrated, key economic indicators, like a 17% drop in industrial profits in August, highlight the disconnect between financial markets and the real economy. Observers note that while the stimulus has shifted sentiment, the fundamentals of China’s economy, including ongoing property market woes, remain precarious. While the package has alleviated some investor concerns about China’s economic trajectory, its global impact will depend on sustained domestic growth, with countries like Australia, South Korea, and Southeast Asian nations poised to benefit from increased demand for commodities and industrial inputs.

Trends to Watch

The house-price supercycle is just getting going 

The Economist

What America’s presidential election means for world trade

The Economist

AI Can Only Do 5% of Jobs, Says MIT Economist Who Fears Crash

Jeran Wittenstein, Bloomberg

The housing market appears to be entering a new supercycle, with property prices set to rise for years to come. Despite facing significant economic disruptions over the past two decades—ranging from the 2007-09 financial crisis to the COVID-19 pandemic—housing prices have shown remarkable resilience. Many predicted a property market crash during the interest rate hikes post-2021, but the global housing market has experienced only modest declines, with real prices falling just 5.6% before rebounding. Currently, prices are climbing rapidly once more, driven by a demand-supply imbalance caused by urbanization, migration, and limited new housing construction. Even in countries like Germany and New Zealand, which saw significant price drops, housing markets are recovering, particularly in cities such as Rome and Lisbon. In the U.S., property prices have risen 5% in nominal terms over the past year, with certain markets reaching new peaks, highlighting the ongoing strength of the sector.

Three key forces are driving this continued surge in housing prices. First, demographic shifts, particularly immigration, are increasing pressure on already strained markets, as foreign-born populations grow rapidly despite restrictive policies. This influx of migrants seeking homes is expected to persist, further elevating demand. Second, urban centers remain attractive despite the rise of remote work, continuing to serve as hubs for employment and leisure, which intensifies competition for limited living space. Lastly, infrastructure challenges in major cities, such as congested transportation networks, limit the geographic expansion of housing markets. These factors suggest that the housing supercycle may not only endure but accelerate, with prices likely to outpace income growth for years to come. Meanwhile, the 2024 US presidential election may reshape global trade dynamics, as both candidates lean towards protectionist policies. Donald Trump’s aggressive stance on tariffs, particularly against China, threatens to destabilize global trade norms, while Kamala Harris’s support for selective trade protections and subsidies indicates a continuation of managed trade rather than a return to free trade. These trends, coupled with MIT economist Daron Acemoglu’s caution regarding AI’s overstated impact on jobs, which he predicts will only affect about 5% of positions, suggest a complex economic landscape where the housing market thrives amidst broader uncertainties in trade and technological transformation.

The Expanding War in the Middle East

The bloodshed in the Middle East is fast expanding

The Economist

U.S. Double Standards on Israel Harm Palestinians, Foster Impunity

Allen J. Wind, Foreign Policy

After Iran’s Missile Attack, Israel May Be Ready to Risk All-Out War

Patrick Kingsley, Eric Schmitt and Ronen Bergman, New York Times

What Hamas misunderstood about the Middle East

The Economist

The Middle East is currently on a precipice, teetering between a fragile peace and the looming threat of a wider regional conflict. The focal point of this tension is the ongoing conflict between Israel and Hamas, now entering its second year. This conflict, ignited by the October 7th Hamas terrorist attack, has already resulted in the deaths of tens of thousands and widespread displacement, highlighting the human cost of this enduring conflict. However, the situation extends far beyond the borders of Gaza, with Iran’s direct and indirect involvement escalating tensions to a fever pitch. Iran’s missile attacks on Israel, purportedly in retaliation for Israeli actions against its allies, signal a dangerous turning point in the region. Israel, emboldened by its military and intelligence successes in countering these attacks and the weakening of Iranian-backed groups like Hezbollah, appears poised to respond forcefully, raising the specter of a much broader and devastating conflict.

Adding to this volatile mix is the ambiguous role of other Arab states. These states find themselves in a perplexing position as they condemn Israel’s actions in Gaza without severing ties with the Israeli state or applying significant pressure on its Western allies, while simultaneously avoiding confrontation with Iran despite suffering tangible repercussions, such as Egypt’s $6 billion loss in Suez Canal revenue due to Iranian-backed Houthi attacks on shipping through the Red Sea. The most influential Arab nations, Saudi Arabia and the UAE, grapple with conflicting sentiments; they are concerned that Israel’s actions could fuel religious extremism yet view Hamas as a fundamentalist threat, leading them to publicly advocate for a ceasefire while privately worrying about any agreements that might empower their adversaries. This hesitancy speaks to the shifting sands of Middle Eastern alliances and the complexities of navigating a region rife with historical grievances and competing interests. Ultimately, the Middle East faces a pivotal moment. Whether the current situation devolves into a wider war or presents an opportunity for a negotiated solution remains to be seen. The decisions made by key players in the coming weeks and months will undoubtedly shape the future of the region for years to come.