When US President Donald Trump ordered an airstrike that killed Iranian general Qassem Soleimani, he also unleashed a shockwave through global financial markets. Major stock indices cratered as investors fled into safe-haven assets like gold, and oil prices spiked on fears of Iranian retaliation.
Here’s how financial markets reacted to Soleimani’s death.
Stock futures recoiled after Soleimani’s killing became public, and the bloodbath spilled over into regular trading hours.
Shortly after 10:30 am ET, the Dow Jones Industrial Average had careened 207.31 points lower, sliding to 28,661.49 for a loss of 207.31 points.
The S&P 500 dropped 0.64% to 3,236.93. Nine of 11 sectors reported losses; even energy stocks relinquished earlier gains to trade in the red.
The Nasdaq plunged 0.68% to 9,030.37. The index’s losses would have been heavier had they not been offset by a massive 4.65% rally in Tesla stock.
European stocks also declined. The STOXX 600 index fell 0.51% to 417.60, and the German Dax slid 1.35% to 1,3205.04.
The flight from equities exerted severe gravity on US Treasury bond yields, which fell across all timeframes.
The yield on the 10-year Treasury note dropped to 1.818%, while 30-year Treasury bond yields declined to 2.284%.
The airstrike triggered the sell-off, but Trump inflamed tensions further when he hinted that “war” with Iran wasn’t out of the question. While his tweet was clearly a jab at former President Barack Obama and the Iran nuclear deal, investors are evidently spooked.
At last check, gold futures had rallied a fantastic 1.54%, clearing the $1,550 level to near its highest mark since 2013. This brought shares in the SPDR GoldShares (GLD), the largest gold ETF, above $145.
Gold wasn’t the only commodity that spiraled higher alongside the stock market’s brutal pullback.
Geopolitical analysts fear that Iran will avenge Soleimani by waging proxy attacks on oil production infrastructure in the Middle East, especially in Saudi Arabia. Well-placed strategic strikes could potentially disrupt the oil supply chain for months, sending a jolt through global markets.
Brent crude rallied more than 3.9% to $68.83, while US West Texas Intermediate (WTI) jumped 3.8% to $63.51.
The rise in oil prices helped Dow Jones energy stock Chevron defied the broader stock market’s plunge. Fellow DJIA component Exxon Mobil also rallied aggressively during pre-market trading, but it failed to secure those gains when the markets opened.
And then there’s bitcoin, the would-be “digital gold” desperate to prove its bona fides as a safe-haven asset for the internet age.
The bitcoin price rose sharply following Soleimani’s killing, peaking at $7,370 on Bitstamp for a 24-hour gain of more than 5%.
But a closer look at the charts reveals that there was a pronounced delay between the moves in traditional financial assets and the bounce in BTC. That makes it unlikely that Trump’s airstrike was the catalyst for bitcoin’s rebound.
Numerous studies have demonstrated that bitcoin remains an uncorrelated asset, and past geopolitical conflicts like the US-China trade war have failed to fundamentally impact the crypto markets.
Not even central bank interest rate adjustments have enabled bitcoin to shed its status as a “speculative” investment, and there’s no reason to believe a US-Iranian conflict will change that.
Then again, the narrative that geopolitical turmoil will transform bitcoin into a safe-haven asset can be a self-fulfilling prophecy – or at least an echo of one. It’s hard to believe anyone is actually buying bitcoin to secure their wealth against financial market volatility, but they may be buying it on speculation that other people will.
Couple that with bitcoin’s recent behavior after sliding below the $7,000 handle, and you’ve got all the ingredients for a rally structurally untethered to the Soleimani killing and subsequent escalation in US-Iranian tensions.
Last modified: January 22, 2020 11:40 PM UTC