Global Stocks came under pressure as the threat of imminent U.S. military action in Syria rattled investors and sent oil prices to their highest levels since late 2014 on concerns about potential disruptions to supply and distribution. Both U.S. crude and global benchmark Brent traded at the highest levels since 2014 as geopolitical concerns overshadowed a surprise buildup in U.S. crude inventories.
U.S. crude futures traded at $67.10 a barrel, having risen 8.1 per cent so far this week. They have traded as high as $67.45 on Wednesday, a level last seen in December 2014. Brent traded at $72.26 a barrel, having touched a high of $73.09 on Wednesday. Gold stood at $1,353.10 per ounce, having climbed to $1,365.30 on Wednesday. A break above its January 25th high of $1,365.8 would take the yellow metal to a high last seen in August 2016. The fears over military action in Syria however humbled stock prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent while Japan’s Nikkei .N225 edged down 0.1 percent. On Wednesday, the S&P 500 .SPX lost 0.55 percent and the Nasdaq Composite .IXIC dropped 0.36 percent while energy shares .SPNY gained more than 1 percent on rising oil prices. Trump declared that missiles “will be coming” in Syria, taunting Russia for supporting Syrian President Bashar al-Assad after a suspected chemical attack on rebels. Damascus and Moscow have denied any responsibility. His comments raised the prospect of direct conflict over Syria for the first time between the two world powers backing opposing sides in the seven-year-old civil war, which has also escalated a rivalry between Saudi Arabia and Iran.
“Last year Russia and Syria did not shoot back against U.S. missiles. But this time the scale of possible attacks by the U.S. and possibly its allies seems larger. If Russia fires back, the war front will be bigger,” said Hidenori Suezawa, financial market analyst at SMBC Nikko Securities. “I don’t think we are heading into the World War Three but should there be a direct collision between the U.S. and Russia for the first time, that’s the sort of headline that would plunge stock prices,” he added. The tension intensified in another front as Saudi Arabia said its air defence forces intercepted three ballistic missiles fired at Riyadh and other cities by Yemen’s Houthis.
“It’s as if Trump is doing chicken games against China, chicken games against companies and chicken games against markets… Even if economic fundamentals are strong, it will be difficult to focus just on them,” said Kuramochi. Trump has also threatened to withdraw from a nuclear deal struck in 2015 with Tehran. Nobuhiko Kuramochi, chief strategist at Mizuho Securities, said Trump’s perceived brinkmanship on many issues from Syria to tariffs on imports from major trading partners ahead of mid-term elections make it hard for markets to focus on economic fundamentals.
“It’s as if Trump is doing chicken games against China, chicken games against companies and chicken games against markets… Even if economic fundamentals are strong, it will be difficult to focus just on them,” said Kuramochi. In the currency markets, the yen was helped by the risk averse mood. The dollar eased to 106.82 yen JPY=, having lost momentum after hitting a five-week high of 107.49 a week ago.
