Saudi Arabia as the new Switzerland? A new world order makes markets riskier, says JPMorgan strategist.

The increasingly assertive Saudi Arabia is one of the topics touched on by Marko Kolanovic, the JPMorgan strategist who’s been sour on stocks for most of the year, and has a year-end S&P 500 price target about 7% below current levels. “There were two main reasons why we took a negative stance: (1.) the unprecedented rise in interest rates (relative to the current levels of debt outstanding), which are slowly eroding economies and setting the stage for a market de-risking, and (2.) geopolitical deterioration that has significantly increased tail risks for economies and global markets,” he said.

In a note to clients, Kolanovic details the emergence of a mulitpolar world, and the shifting economic center of gravity. “Perhaps underappreciated in the news cycle are peace initiatives in Yemen, dialogue between Saudi Arabia, Iran and Qatar, signs of normalization with Syria, and initiatives to help solve conflict in Europe. Many of these are a result of leadership by Saudi Arabia — a country that is experiencing rapid economic growth and modernization,” he said. “In fact, the Middle East and countries like Saudi Arabia may, in these new developments, acquire a status analogous to Switzerland in 20th century Europe: not aligned with any one bloc or warring party, and facilitating trade and dialogue with all.”

Europe, by contrast, is dependent on the global east and south for imports of raw materials and exports of finished goods and services. “With the increasingly firm resolve of the European Commission to confront Russia (and perhaps even China), Europe is upping geopolitical risk factors for its economy,” says Kolanovic.

The biggest risks come from tensions between the U.S. and China in the East and South China seas. “The reliance of U.S. and European companies for revenues (and revenue growth), as well as dependence of the same companies on the supply chains and production in China, are such that the economic and market fallout of a potential conflict likely would be dire. It is hard to imagine that both sides are not aware of this, and the question is which side has more determination and appetite for hardship in order to achieve national or geopolitical goals,” he says.

Kolanovic does not endorse the idea that the U.S. dollar will fall in value — in fact, the greenback may rise during the next crisis. “De-dollarization risk is not that all of a sudden emerging powers stop using USD or even replace it with some new, perhaps commodity-based joint currency. Rather, de-dollarization risk for Western economies mostly relates to inflation and their debt burden,” he says. Basically, the west was able to outsource carbon-intensive industries, leaving them fragile and susceptible to inflation shocks, while trade surpluses were recycled into U.S. dollar assets.

One interesting chart presented was the ratio of GDP in purchasing power parity terms. In a hypothetical new conflict, the economic advantage for the west would be far less than enjoyed during World Wars I and II.

“Global investors should agnostically assess all possible outcomes, including one that we think is more likely — that things may become worse before getting better,” he says. He’d turn more positive if rates started falling, a de-escalation of the war with Russia, and if tensions with China eased.

The chart

U.S. stock futures ES00 NQ00 pointed to another weak start. The yield on the 10-year Treasury was steady at 4.25%. Crude-oil futures CL slipped a touch.

The buzz

The economics calendar includes the trade deficit, the Institute for Supply Management services report and the Fed’s Beige Book of economic anecdotes. Boston Fed President Susan Collins, who recently spoke with MarketWatch, will be making a speech. The Bank of Canada is expected to hold interest rates.

Roku ROKU said it would lay off 10% of its workforce, news that sent its stock surging.

Southwest Airlines LUV warned leisure bookings were at the low end of expectations, as it, United Airlines UAL and Alaska Air ALK flagged rising jet fuel costs.

Meme-stock favorite GameStop GME and enterprise AI company C3.ai AI report results after the close.

Amazon.com AMZN is set to be sued by the Federal Trade Commission after last-ditch negotiations failed, according to the Wall Street Journal.

Best of the web

Elon Musk borrowed $1 billion from SpaceX in the same month of his Twitter acquisition.

Every major car brand’s new internet-connected models flunked privacy and security tests.

Sam Bankman-Fried is living in jail on a diet of bread, water and peanut butter.

Top tickers

Here were the most active stock market tickers on MarketWatch as of 6 a.m. Eastern.

The chart

Peak eating out? Analysts at Deutsche Bank find searches for restaurant bookings via the OpenTable platform are trending lower globally. “We suspect that DM related discretional spending on eating out is beginning to trend lower, at least in terms of growth,” they say. It was part of its third annual survey of consumer trends in coffee for the U.S., France, Germany and the Netherlands, in which it reiterated a buy on Nestle CH:NESN but downgraded JDE Peet’s NL:JDEP to hold, and said pent-up demand is limited by current pricing. Consumers spend about $30 per month on coffee, its survey found.

Random reads

The air-traffic disruption in the U.K. last week, during a key travel day, was labeled a 1-in-15 million event.

Thieves are increasingly stealing Spanish olive oil.

Another thief, of the three-legged bear variety, appropriately went for White Claws.

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