Jefferies flags geopolitical risks as the biggest near-term threat to markets

As the report puts it, "GREED & fear is still of the view that the biggest near-term risk to markets remains geopolitics."

While much of the market's attention is fixated on upcoming monetary policy shifts and the US presidential election, Jefferies's latest Greed & Fear report on September 12 said that the most significant near-term threat lies in geopolitical tensions. As the report puts it, "GREED & fear is still of the view that the biggest near-term risk to markets remains geopolitics."

Jefferies' Greed & Fear report dives deeper into the geopolitical risks overshadowing the global markets, placing the spotlight on the escalating tensions in Ukraine and the Middle East. The report finds it 'astonishing' that the heads of both the Central Intelligence Agency (CIA) director Bill Burns and MI6's chief Richard Moore recently made a rare joint appearance at a London event on September 6. This marked the first time in their agencies' 77-year history of intelligence sharing that the two leaders have come together publicly.

Burns and Moore said that the reason for their joint appearance was to underscore the strength of the UK-US relationship at a time of unprecedented global risks, according to an article by The Financial Times. "This would seem for good reason to GREED & fear, given intelligence agencies are meant to operate in the shadows," the Jefferies report said.

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The spy chiefs discussed a range of challenges facing the international order, including Russia's war in Ukraine, its sabotage efforts across Europe, the rise of China, and the rapid pace of technological advancements. One key focus was the ongoing conflict in the Middle East.

However, Jefferies interpreted this as a sign of the UK's diminished global role, exacerbated by the consequences of Brexit, labeling Britain as a "poodle of Washington."

As a former ambassador to Russia and Jordan, Burns has a deep understanding of both regions. In his memoir, he made it clear that pushing Ukraine toward NATO membership crossed a Russian "red line." On the Middle East, Burns reiterated the need for a two-state solution for lasting peace, though Israeli Prime Minister Netanyahu has long opposed this idea.

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On Ukraine, Burns called the recent offensive in Kursk a "tactical achievement," but there's concern that sending over 10,000 Ukrainian troops there has weakened its defences, allowing Russia to gain ground. Meanwhile, President Zelenskyy is pressuring the West for long-range weapons to strike inside Russia, which risks further escalation. His goal is to provoke Russian retaliation that could lead to NATO's full involvement before the US election in November, especially since a Trump victory could cut off support to Ukraine.

As Jefferies sees it, "the next two months prior to the November poll are particularly risky, most particularly if the polls stay close."

Jefferies suggests that tensions in Ukraine, rising instability in the Middle East, and the risk of further escalation before the US elections are the true wildcards for markets.

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