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Syria war drums rattle world financial markets

Stock markets retreated yesterday as US President Donald Trump vowed to strike Syria

Divided UN Security Council to agree on response to Syria chemical weapons use
Divided UN Security Council to agree on response to Syria chemical weapons use
Image: Andrew Burton/Getty Images

Stock markets retreated yesterday as US President Donald Trump vowed to strike Syria over its alleged use of chemical weapons.

“A touch of risk aversion crept into financial markets on Wednesday [yesterday], as the sense of relief over easing US-China trade tensions was overshadowed by the rising geopolitical risk surrounding Syria,” analyst Lukman Otunuga, at FXTM online trading firm, said.

Trump said missiles would be coming in response to an alleged chemical attack in Syria, defying Russian warnings against a strike.

The main US stock indices opened lower, with the Dow dropping 0.8% in the first minute of trading.

European markets were also lower in afternoon trading, with both Frankfurt and Paris down more than half a percentage point.

London fared better, with the FTSE 100 down just 0.1%.

Oil prices benefited, however.

“Escalating tensions in the Middle East have stimulated concerns over potential supply disruptions; this is likely the main culprit behind oil’s recent aggressive appreciation,” Otunuga said.

Oil prices have approached three-year highs, with easing concerns about a US-China trade war also helping sentiment.

Asian equities flitted between gains and losses, with hopes that a China-US trade war will be averted providing some support.

In a thinly-veiled warning to Trump – who has locked horns with China on trade – International Monetary Fund boss Christine Lagarde said yesterday that countries should open trade further by reforming their own domestic practices rather than putting up new barriers.

“Governments need to steer clear of protectionism in all its forms,” Lagarde urged, adding that the system of rules and shared responsibility was now in danger of being torn apart.

Chinese President Xi Jinping had soothed world markets on Tuesday with a conciliatory speech pledging to further open up the world’s No 2 economy, ease motor vehicle tariffs and take action on US intellectual property rights.

The measures address some of the key issues that have irked Trump and came after the White House on Friday unveiled another round of levies on billions of dollars of Chinese goods.

Xi’s comments tempered worries about a potentially devastating trade war that could hammer the global economy just as it gets back on track after the financial crisis.

The Xi speech followed a series of tit-for-tat threats by the US and China to impose retaliatory tariffs on one another that have rattled markets in recent weeks.

The market had surged on Tuesday on easing trade worries as well as geopolitical concerns as Western governments consider their response to an alleged chemical attack in Syria, while the US is also toying with slapping Iran with sanctions. 

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