“We’ve Come Too Far, There’s Too Much To Lose!” Composure Key As World War III Beckons

If ever there were a time when the phrase “that escalated quickly” was appropriate, this is it.

Following Rex Tillerson’s 2:50 EST impromptu press conference on Thursday afternoon at which the Secretary of State seemed to telegraph an imminent US military response to the chemical attack in Idlib, markets wobbled, but managed to make it to the closing bell largely without incident.

Well, a little over six hours later, two Navy destroyers launched 59 tomahawks. The market response was just as swift as Trump’s reaction to Assad:

S&P 500 FUTURES ERASE GAINS AFTER U.S. LAUNCHHES SYRIA STRIKE
YEN SURGES 0.4% TO 110.40 AS NBC REPORTS U.S. STRIKE ON SYRIA
SPOT GOLD RISES AS U.S. LAUNCHES STRIKES ON SYRIA

As you can see from the chart, some dips were indeed bought and earlier this morning, a discernibly irritated Richard Breslow remarked that “it’s unlikely that the U.S. crippling an air base from which chemical weapon atrocities were launched will be a defining moment in whether markets crack or not.”

We’re not entirely sure we agree with that but hey, who knows, right?

In any event, this certainly renders Friday’s NFP print (full preview here) less meaningful than it otherwise would have been. Sorry, but that’s just the reality. That doesn’t mean it won’t still move markets, but a blowout beat or a big miss isn’t going to un-launch those missiles or un-kill the people who died in the strikes. And God forbid it is a big miss, because if that turns out to be the case, well then look out below in 10Y yields.

Speaking of which, do note that 10Y yields hit 2.31, their lowest levels since January 17 after the strikes…

…while the yen moved toward 110. The last time it was below 110 was November 18…

“There’s a clear risk for 10-year Treasury yields and USD/JPY to trade lower as they’re close to breaking the lower band of their ranges,” Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney said. “Treasury 10-year yield may drop to as low as 1.85% depending on Russia’s response to Syria and on any signs of further actions from the U.S.,” Sean Keane, analyst at Triple T added. 10s briefly dipped below 2.30%.

Still, dips were bought, knee-jerks were reversed. “A rather typical knee-jerk reaction to developments over Syria that saw demand for haven assets was followed by low volumes and subdued trading interest as markets waited for the release of the U.S. employment report,” Bloomberg wrote this morning. “Initial urge for gold and fixed income waned as traders leaned to a view that the U.S. missile attack on Syria was more of an isolated strike rather than a quick escalation of risks.”

We’ll see.

Speaking of gold, you can see the bid for bullion below along with the predictable spike in crude.

Crude jumped as much as 2.4% after the strikes. “Syria is not a big oil producer but it does potentially increase the risk of escalation in the whole region,” Ric Spooner, a Sydney-based chief market analyst at CMC Markets, remarked. “We’re seeing a risk response to the airstrike. Given rising supply, the size of inventories and the extent of the pick up in shale output, it does seem likely that price gains will be capped.” Apparently, even war isn’t enough to resurrect the bull thesis for oil.

Asian markets held up reasonably well, while European shares look nervous.