The Economic Ramifications of Trump’s Airstrike in Syria

Last Thursday President Donald Trump ordered the first military action of his presidency, an airstrike against a Syrian airfield, in a response to a chemical weapons attack used by the regime of Syrian President Bashar al-Assad.  His tough and quick response to the chemical attack caused a number of immediate chain reactions, including huge hits to global stocks, currencies, and commodities. Additionally, it seriously affecting the U.S.’s international relations and the global community as a whole.

Stock markets around the world were jittery following the news of the missile strikes; “there was a bit of a knee-jerk reaction to the headline,” explained Mark Cabana, the head of U.S. short rates strategy at Bank of America Merrill Lynch in New York.  The initial shock of the U.S. airstrike caused global stocks to decline, however they soon increased once the U.S. issued a statement clarifying that the attack was a one time event and would not cause further escalations.  Japan’s Nikkei for instance had been trading up at more than 1 per cent before news of Trump’s military action broke, and then quickly sank into negative territory before eventually returning to more stable levels.  Similarly, Russian stock markets fell on Friday, after the military strikes diminished hopes of for better relations between the US and Russia; the main Russian stock market index dropped 1.8 per cent.  And U.S. stocks quickly fell directly following the news.

us stocks
In a similar fashion, many emerging-market currencies fell after news broke.  Specifically, Russian currency fell the Friday following the airstrikes; Russian ruble fell 1 per cent against the U.S. dollar.

Russian ruble.png

The missile strikes also increased prices of safe-haven assets that are considered safer bets in times of uncertainty.  For instance, the price of Gold rose more than 1 per cent, reaching a five month high.  Likewise, oil traded at a one-month high on Friday following the airstrikes.  Chief market strategist at AxiTrader, Greg McKenna explained that “Geopolitics are often big drivers in oil markets… The potential reactions from Iran & Russia, both major oil producers will keep oil traders on edge… That uncertainty supports prices in the very immediate term.”  This potential for increased tensioned in the Middle East simulated oil prices, with Brent and West TExas Intermediate crude surging more than 1.4 per cent, and crude closing for the week at about 3 per cent.

crude prices

And lastly, Trump’s airstrikes proved to have immense ramifications on U.S. international relations.  In a statement made following the strikes, Russia claimed that the attack caused ‘considerable damage’ to Russian-US ties, which may prove especially detrimental in its potential to offset the Syria-Russia war against ISIS, as Russian withdrawal from the region would likely help the terrorist organization regain territory.

Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd, said in a statement to Bloomberg News, “Whether the market reaction is temporary or will continue will depend on the reactions from the international community.”

Sources:

https://www.bloomberg.com/news/articles/2017-04-07/here-s-what-trump-s-syria-strike-just-did-to-financial-markets

http://money.cnn.com/2017/04/07/news/economy/russia-us-syria-economy-sanctions/

http://money.cnn.com/2017/04/06/investing/oil-prices-syria-us-military-action/index.html?iid=EL

http://economictimes.indiatimes.com/news/defence/donald-trumps-syrian-strike-may-snowball-into-a-global-conflict-heres-why/articleshow/58063702.cms

http://www.reuters.com/article/us-global-markets-idUSKBN179031

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3 thoughts on “The Economic Ramifications of Trump’s Airstrike in Syria

  1. lokeefe18

    Interesting insight, Kate. I guess we’ll have to wait and see if our Commander in Chief keeps his word about this being a one-time event. At around $1 million each, the roughly 59 Tomahawk missiles certainly add up in terms of price but still don’t leave that much of a dent in the $580+ billion defense budget. If the budget blueprint President Trump’s proposed for fiscal yr 2018 is approved, it will be interesting to follow the macro effects of such a sizable increase in defense spending. With military spending caps in place since 2013 and in light of the recent failed attempt at healthcare reform, it’s not a sure bet that the budget will be approved without some hefty concessions being made. In the meantime, I’m curious to see how the markets (esp. for defense contractors) will be affected by news events regarding the budget bills (2017+2018) or any future military provocations.

    Reply
  2. Victor Matheson

    This is a good example of what we did on the HW in action. One of the questions was about anxiety about war reducing consumption driving back AD. Well, falling stocks and skittish investors is exactly that type of response.

    Reply
  3. jmcase18

    Kate, I really enjoyed reading your article. This event is an example of the intersection between economics and constantly changing geo-political actions. Hopefully, Trump remembers that the economy is at the mercy of political actions and that uncertainty is not conducive to economic stability.

    Reply

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