NEW YORK, N.Y. – The week saw markets saying goodbye to 2019 and welcoming the new year with a rally. News that China will be relaxing its banking regulation policies and US President Donald Trump’s tweet about a January 15 trade deal signing bolstered the global market. However, all these gains were disrupted by a US air strike on Baghdad Airport.
Global stocks had a sluggish start due to the holidays. Many stock exchanges were closed or had very trading. But markets quickly bounced back on Thursday, especially as China’s central bank shared that it was lowering the cash banks are mandated to hold. The move was estimated to free up around $115 billion and would help boost the country’s economy.
The announcement helped lift the stock markets in Hong Kong and Shanghai. The stimulus package, and good manufacturing data, also boosted European shares. The STOXX 600 and the FTSE both rose by 1% while the CAC 40 gained 1.3%.
However, these gains and Wall Street’s almost month-long winning streak abruptly came to a halt on Friday. News broke that a US air strike on Baghdad airport killed General Qassem Soleimani of Iran. The Iranian government has since vowed a harsh retaliation against the US.
Reports of the strike and Washington’s subsequent confirmation saw US stocks dropping. The S&P 500 hit a record high on Thursday but then plummeted 0.7% or 23 points to end at 3,234.85 as the week ended. The benchmark ultimately racked a 0.2% loss this week.
The Dow Jones and the Nasdaq didn’t fare any better. The former dropped 0.8% or 233.92 points to 28,634.88. The index even went down by 368 points sometime this week. The Nasdaq also slid down 0.8% or 71.42 points to 9,020.77. Meanwhile, small company index Russell 2000 lost 0.4% or 5.90 points to reach 1,660.87.
The price of gold and crude oil shot up immediately. Oil prices increased by 3.1% while investors turned to US government bonds for safety.
The strike was massive escalation and stoked the already mounting tensions between Tehran and Washington. It also introduced a third issue that traders have contend with.
Jeff Kravetz of the US Bank Private Wealth Management explained that for some time now, the major risks revolved around the US-China trade deal and federal policy. Now the issues in the Middle East might cause some short-term volatility.
Iran’s promised retribution is also causing worries among investors as it could disrupt the world’s oil supply chains and send prices even higher.