Market's red flag
Notice Mr Market's reaction to the sudden spike in geopolitical risk premium as war clouds gather over Iran once again; especially in traditional safe havens. Brent crude jumped 1.5 percent (weekly high) when CNN revealed a US intel leak about an imminent Israeli attack on Iran's nuclear facilities, and investors rushed to rock solid safe havens like the Swiss franc and Japanese yen. Gold also rallied and reclaimed $3,300.
But, once again, Big Money didn't turn to the dollar in a time of turmoil. That's one more chip of US economic/financial credibility falling away after Trump's tariff madness triggered a historic loss of confidence in the reserve currency.
'The US dollar has of course lost its lustre as the undisputed safe reserve asset,' the FX strategy head at Westpac Banking Corp told Bloomberg. 'These periodic flareups are going to show up more forcefully in alternatives'.
It's hard to imagine a more destabilising global scenario than an all-out Israel-Iran war right now, except perhaps an all-out war in the subcontinent. But could it be that this perfect political/financial storm is building largely because a disgruntled and increasingly isolated Bibi Netanyahu was jolted when deal-making, Houthi-taming, Indo-Pak-war-ending Donald Trump waltzed through the region, let the money do the talking, and didn't even stop to say hello? And also because Netanyahu needs to throw more wood into the fire that keeps his extremist, radical coalition alive?
Already, his plans to occupy Gaza have gone down badly in and out of Israel. Yet he'll do it, or his government will break and he'll go to prison. The UK government has suspended free trade talks and threatened sanctions against some individuals. The EU, Israel's largest trading partner, is calling for a review of political and commercial relationship. And the US completely ignored it in the Houthi talks, the Hamas talks, the Iran talks, and in dropping the Abraham Accords from the Saudi talks.
Yet even has he skates on thin ice, he has good reason to be optimistic about provoking a war that he hopes will gut US-Iran talks and force Washington to its side. One, he's never had to pay for his defiance and disobedience before. That's probably because, two, he's always delivered good results for himself and his friends.
After all, he has bombed away Palestinian resistance for a generation, ruined Gaza, debilitated Hamas, destroyed Hezbollah and killed the iconic Hasan Nasrallah, enabled the fall of Syria's Assad regime before destroying its entire military arsenal and left Iran more defanged than at any point in decades.
But that was because the US backed it. Thomas Friedman says Joe Biden's rebuke went about as far as 'I love you Bibi, but I disagree with you' and then Netanyahu would go back to doing what he was doing. Trump's expressed a lot of love for him too, but now he's moved to sidelining him at a time when he's openly shocking and offending friends and foes alike.
Recent market trauma has only aptly reflected the pangs of a shifting world. Another war in Europe, the decline of Nato, a whole new calculus in the Middle East, the inevitable US-China confrontation getting closer and closer and the global economy choked by the kind of tariffs not seen in a century. Besides, Pakistan and India finally openly engaged in the kind of exchange whose endgame could well be a mushroom cloud over south Asia.
CNN doesn't leak CIA information just to break news. Once before the (Sleepy Joe's) White House was forced to intervene when news was leaked of Israeli war plans against Iran, in the thick of the Gaza war, no doubt to draw America into the fight.
For one reason or another, this news is out. And it's serious enough to grab Mr Market's attention. Sharp inflows into safe havens like gold, yen and swissie, as dollar trauma deepens, isn't just the market pricing in the new risk-off environment. It's also raising a red flag that this time the threat of an Israel-Iran war is very real, and the US has already suffered unprecedented loss of credibility in the financial world.
Will Trump now give into Netanyahu's tantrums, as always, and take responsibility for further erosion of America's political/diplomatic credibility as well? CNN should tell soon enough.
Meantime, listen to Mr Market.
And buy gold.
Copyright Business Recorder, 2025
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