Syria Strikes, China Meeting Push Investors to Safe Havens

Syria Strikes, China Meeting Push Investors to Safe Havens

US missile strikes on Syria sent some investors to gold and other safe havens. With missiles launching as Pres. Trump met China's Pres. Xi for the first time, the strike may serve as a larger demonstration of US resolve. 

Guided-missile destroyer USS Ross fires a tomahawk missile at Shayrat airfield, Syria |
Guided-missile destroyer USS Ross fires a tomahawk missile at Shayrat airfield, Syria | US Navy Petty Officer 3rd Class Robert S. Price

Friday was a day of headlines about international conflict and politics. Besides the focus on Syria, China, and Russia, there was an attack in Stockholm, Sweden, by a lone truck driver, who drove through a crowded shopping street, killing at least two people in a suspected terror attack. That attack, similar to attacks in Berlin and Nice, came amid a lot of other news. The markets responded to the uncertainty and activity with alternating selloffs and recoveries.

On Thursday, US President Donald Trump welcomed Chinese President Xi Jinping for a weekend of talks at Trump's club Mar-A-Lago in Palm Beach, Florida. As the two dined in the open air, within view of club guests, Trump informed Xi that just before their meal, he had authorized a missile strike on Syria's Shayrat airfield, from which Bashar Assad is suspected to have launched the sarin gas attack which killed over 70 people, including children. The attack violated international bans on the use of chemical weapons. As Trump and Xi dined on fillet of Dover sole and New York strip steak, 59 Tomahawk cruise missiles prepared to launch from two US Navy destroyers . 

When Barack Obama contemplated a similar attack in 2013, Trump had opposed the idea. In the end, Obama abandoned his "red line" statements and opted for a negotiated settlement involving Russia that forced Assad to accept international inspections. Clearly, Assad has resumed his chemical weapons program. Trump in turn reversed his earlier reluctance to take military action in Syria. The rapid response caught many by surprise and drew criticism from the Russian government and some of Trump's supporters, even as he received support from Britain, France, Germany, and even Democrats. Hillary Clinton had repeated her call to destroy Assad's airfields as recently as Wednesday. 

Whether Xi was surprised or not by the dinner conversation, the move was a clear signal to more than just the Assad government that the US is prepared to act in the face of certain threats. Assad is not the only troublesome dictator with weapons of mass destruction: Kim Jong Un is developing a long-range missile that could reach the US. While China has long backed North Korea, it is trying to keep Kim Jong Un in check. Meanwhile, it opposes the US's sale of missile defense systems to South Korea. 

Whatever else the strike may achieve or represent, in blunt geopolitical terms, launching 59 Tomahawks in a surprise move against a dictator who has previously relied on support from Russia and China, then casually informing his guest about it over dinner is a pretty bold power move by Trump at the start of a weekend of tough negotiations.

After their first meeting, the US President said of Xi, "we have developed a friendship. I can see that.” Trump's purported friendship with Vladimir Putin, however, may have taken a hit. Russia unilaterally announced that it would no longer observe a 2015 memorandum of understanding designed to prevent accidental hostilities between US and Russian aircraft. This increases the chances of a mid-air collision or misfire. Both Putin and Trump face domestic critics. Trump may benefit from showing willingness to displease Russia. But Putin now faces critics who question how the US missiles got past Russian anti-missile defenses and how he failed to exercise influence over Trump. 

Markets dropped, then recovered Friday as the overall tone moved to a "risk-off" posture. As might be expected following any unrest in the Middle East, oil prices spiked over 2 percent, reaching their highest level in a month. With so much uncertainty, it's no surprise that investors will want to pull out of riskier assets like equities and into safe havens. Precious metals jumped. The Japanese yen and Treasury yields surged, before giving back their gains. By Friday afternoon, US and global stocks had recovered their losses and posted narrow upticks for the week as a whole. 

Despite the display of overall market resilience, investors didn't seem eager to leave positions open over the weekend. This president has a history of making newsworthy tweets on Saturday mornings. And now that he's shown that he's also capable of taking well-planned military action in under 48 hours, it's clear that a lot could happen in the span of a weekend. 

Finally, the unemployment rate in March fell to 4.5% even though the economy only generated 98,000 jobs for the month, far below the forecast of 180,000 or more. Still, the three-month average and other numbers suggest that job creation remains stable and reasonably strong. However, the quality of wages remains a worry for economists and, no doubt, the Fed. 

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