Heightened geopolitical risk following overnight US military intervention in Syria offers a timely reminder about trading and investing. It also provides us with a welcome positive takeaway that markets would appear to be overlooking into the weekend. One that could ultimately help reignite the Trump trade to record highs.

Last night’s market reaction reminds us of the asset classes that investors regard as safe havens. Gains for precious metals like Gold and Silver were no surprise, although it’s the former that has outperformed with a bullish breakout to levels last seen in the wake of the US election. The latter is up on the day, but has yet to clear 2017 highs.

Other preferred ‘ports for a storm’ include the Japanese Yen which re-tested its best levels against the US Dollar since mid-November. The Swiss Franc was also bid, but less pronounced. And both are already well off day highs due to a US Dollar rebound that is explained in more detail later on. Sovereign bonds also benefited, but like the Swiss Franc, only mildly. Which brings me nicely to my second point.

Markets have done anything but panic. In fact they are suspiciously calm. The safe haven moves are far from what we have seen the past when investors really got spooked and Gold put on 10s of dollars. The equity sell-off has already eased; the UK UK Index is well off its lows, now posting gains, while the German DAX trying its best to recover lost ground. Which says a lot.

Waning belief in the Trump trade after a failed Healthcare bill proposal saw equities pull back from March record highs. Investors are perhaps taking solace from the new US President’s willingness to intervene in Syria, suggesting he’s maybe not as inward looking as thought, and prepared to do what it takes at home as well as abroad. Might he be prepared to soften his stance on China, offering us something positive regarding trade during day 2 of the Trump-Xi meeting, even after the Syria move? Could this allow markets to regain their bullish composure and reignite the trump trade next week?

A mixed jobs report is even helping sentiment into the weekend. A disappointing headline Non-Farm Payrolls print (rebound next month?) is being made up for by the lowest unemployment rate in almost 10yrs coupled with solid participation and wages growth. This suggests an ever-tightening labour market conditions which would allow the US Federal Reserve to maintain its path of monetary policy normalisation through further interest rate hikes this year. Which it will only do if it is sure the economy can handle it.

Markets would still welcome any gift-wrapped good news on US fiscal stimulus such as infrastructure spending, tax cuts and deregulation to spur on US Inc in the hope that it helps bring global economies up with it. It could well be that we have to wait until late summer for any concrete proof. However, if last night allows investors shift focus from their recent discontent at a lack of policy progress to a more tempered opinion of Trump’s protectionist pledges, we know only too well how they are prepared to run with that, potentially for several months.

This was the first major event of Trump’s young presidency. Could it be this that ultimately defines him on an international stage, and pre-occupies markets for the foreseeable until he can deliver what he promised?

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As always, have a great weekend. I’ll be back after Easter.

Mike van Dulken, Head of Research, 7 April 2017