What will the Syria attack mean for the asset markets? The US and its allies launched precision strikes against the Syrian government following the regime’s alleged use of chemical weapons. The attack was well-trailed, meaning that the markets have already priced in the action. Nevertheless, any long-term escalation could have a bigger impact on stock prices.
Impact So Far
While stock performance has been more muted in 2018 than it was in 2017, markets have proved very good at shrugging off major geopolitical news stories. It appears to be the case that there is simply so much news and information each day that markets will not be moved by a single story. Even when they are, stocks have tended to recover upon a reassuring counterstory that tends to pop up within a day or two.
Any major escalation of the Syrian conflict could prove a short-term headache for certain sectors such as natural resources and the travel industry. It could also spell further bad news for the Russian Rouble, which has fallen dramatically as Russia-US relations have cooled since the beginning of the year. Any move to a sustained conflict would doubtlessly place significant pressure on the market in general, but so far there is little sign of that happening.
The long-term impact on the markets depends on whether the Syria attack is a one-off gesture from the west or marks the start of a longer campaign.
If, after a few weeks, it looks like no more action will be forthcoming then expect markets to take things in their stride and return to their previous levels within a couple of weeks. More substantial shifts are only likely to occur if the action is followed up with further strikes in the next couple of weeks. Such moves would most likely undermine the market’s confidence in overall global economic performance and cause the prices of raw materials such as oil and ‘safe haven’ assets like gold to rise. The impact would be even larger if further strikes coincide with a cooling of relations between the United States and Russia.
It is too early to say precisely what impact any escalation in Syria will have on the markets. However, this is a story that has the potential to run for the rest of 2018 and beyond.
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