Geopolitical Tensions Drive Risk Aversion

Andamento del mercato - 25/11/2015

The escalating fears of the geopolitical tensions appearing in the Middle East on Tuesday affected the tone in international markets, seeing investor sentiment taking an increasingly nervous turn. The relatively stable market climate that prevailed during yesterday’s morning trading session was quickly reversed after the shooting down of a Russian jet by the Turkish Air Force. The US travel advisory warnings to citizens and increased terrorist threats in Europe have also impacted risk sentiment across the globe as terrorism remains a widespread concern. The kneejerk reaction in the Turkish Lira and Russian Ruble was an indication that the two nations respective economic outlooks will continue to be hostile to outside capital and foreign direct investment as they grow increasingly isolated from capital markets. Geopolitical tensions arising from both increased threat of terrorism combined with the unfolding strain between Russia and Turkey have seen haven assets benefit from the increased risk premium.


Rising hostility between countries operating in the Syrian theater also contributed to a temporary rally in haven assets, supporting gold prices for the first time in three days as investors fled to safety, pushing the precious metal towards $1080 before a pullback. Crude oil prices also rose as the potential for dragging in additional regional players could see more widespread altercations and conflict in the Middle East. Although Saudi Arabia’s announced willingness to stabilize prices was attributed to the sharp uptick in oil prices, oil futures have since reversed lower. West Texas Intermediate oil prices retreated from a two-week high after the American Petroleum Institute weekly crude oil stock report showed a build of 1.90 million barrels at the Cushing storage facility. Although stronger growth in the US economy as evidenced by the latest quarterly GDP revision higher to 2.10% could have also contributed to the rally, inventory concerns continue to weigh on pricing. However, as tensions temporarily ease with no news on the further Russian steps taken in retaliation towards Turkey, prices of haven assets and commodities continue to trend lower following the brief breaking news rally.

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