TRUMP SPOILS THE PARTY
Until last Friday, markets had picked up where they had left off in 2019, continuing to appreciate after most indices had set new records in the previous weeks. Then Mr Trump stepped in, wrong-footing investors on Friday by ordering the assassination of General Soleimani, one of Iran’s most influential leaders. He was killed by a US drone strike while travelling around Bagdad. That left markets out in the open. Congress only heard about the news after it happened.
Those concerned and critical of the drone strike have drawn attention to the unsure consequences from this point onwards. So far, the rationale broadcast by the White House has mostly failed to convince. There will doubtless be some kind of response. And it’s hard to foretell the impact on the Middle East – a region already brought to its knees by wars in Syria and Yemen.
For now markets have merely sagged. Investors will price the actual risk of the conflict depending on the scale of the – inevitable – reprisals. Meanwhile the price of crude has shot up by over 6% since the news broke. The good news for President Rouhani, however, is that this assassination will shore up support around the central government after recent increases in fuel prices stoked opposition throughout the country.
On the currency front, the US dollar has been slipping in recent months ahead of 2020: the year of the presidential election. The Democrat nomination is still an open contest, and doubts about who will be going up against President Trump are weakening the buck, simply because investors are concerned of the future candidate’s stance on key issues that were the campaign pledges of the sitting president: namely lower corporate taxes, looser financial regulation and more government borrowing.
The huge US deficit, weighing in at 4.7% of GDP in spite of economic growth, is likely to continue dampening the dollar, which has struggled to recover despite this latest resurgence in geopolitical tensions.
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