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Distracted Donald restores market calm with Syrian storm brewing

Infinox Contributor
Donald Trump Holds Campaign Rally In Dallas
Distracted Donald restores market calm with Syrian storm brewing (Source: Getty)

Donald Trump is not a man renowned for his long attention span. The influence of the last thing he heard, most often on a rolling cable news channel, is reflected in his penchant for social media, with the president’s tweets often bearing an uncanny resemblance to the last topic discussed on Fox & Friends.

However, having spent much of last week talking up a possible trade war with China, President Trump is once again seeing other challenges competing for his attention.

Between the escalating situation in Syria - an area in which Mr Trump is keen to take a firm line, given his predecessor Barack Obama’s perceived weaknesses in dealing with President Assad - and the embarrassing FBI raids on the offices of Trump’s lawyer Michael Cohen, the president has declined to fuel the trade war fires that seemed to be burning so brightly last week.

Whether this is due to these new distractions making him take his eye off the ball, or a concerted effort to ease the tensions with China, is moot. But the effect is unequivocal - a relief rally on the markets.

Stability breeds success

In Europe and on Wall Street, trends took an upward turn - both the FTSE 100 and Dax hit their highest intraday levels in a month while the Dow Jones climbed 1.7% on opening, with crude oil also rallying following the news from China that tariffs on imported vehicles would be significantly lowered.

This was part of a speech by President Xi that has been interpreted as a relaxation in last week’s tensions, when the two biggest global economies seemed hell bent on going tit for tat, to the jeopardy of market stability worldwide.

"In today's world, the trend of peace and cooperation is moving forward and a Cold War mentality and zero-sum game thinking are outdated,” said the Chinese president, showing a level of diplomacy and awareness lacking in last week’s exchanges.

It followed the revelations that the value of Chinese deals in the US had dropped by more than 90 per cent in 2017, the first year of Trump’s presidency, according to joint studies by the National Committee on US-China Relations and the Rhodium Group.

In timely fashion, the Congressional Budget Office also announced its projections that the US annual budget deficit is going to top $1 trillion in 2020, highlighting the Trump administration’s short-term measures such as tax cuts and higher public spending as temporary economic boosts that will merely exacerbate its long-term debt. With his domestic economic affairs being questioned, perhaps Trump is beginning to appreciate the need for cross-border collaboration with other global superpowers, rather than sustained squabbling and uncertainty.

Time to get serious about Syria

Meanwhile in Syria, at least 40 people were reported to have been killed over the weekend in a suspected chemical attack on Douma, a rebel stronghold just outside Damascus.

This presents Trump with an opportunity to flex his military muscle and demonstrate a no-nonsense foreign policy in contrast to the perceived reluctance of Obama to come down harder on the Assad regime.

Tuesday’s announcement that Mr Trump has cancelled a planned trip to Latin America to allow him to “oversee the American response to Syria” shows how high on his administration’s agenda this issue has risen, with a “forceful” reaction promised and a range of military options being explored.

Any US action in Syria will once again raise tensions once again between the White House and the Kremlin, which have been strained ever since the US came out in full support of the UK in its dispute with Russia over the Salisbury attack.

How the US formulates its response on Syria will have a big influence on the global markets in the coming days. For now, and whatever the reason for it, the anti-China rhetoric emanating from the White House has taken a back seat, allowing for some stability to return.

Whether this cooling of the trade war talk is by decision or distraction, Mr Trump cannot fight battles on so many fronts - we’ll see soon enough which one draws his focus, and the economic repercussions.

For now it says much about the perennial volatility of the Trump White House that the prospect of US military intervention in Syria - and an FBI raid on the President’s attorney - can actually help the markets to settle.

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