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Financial Markets’ Iran Delusion

18 37 0
14.01.2020

LONDON – Following the United States’ assassination of Iranian Quds Force commander Qassem Suleimani and Iran’s initial retaliation against two Iraqi bases housing US troops, financial markets moved into risk-off mode: oil prices spiked by 10%, US and global equities dropped by a few percentage points, and safe-haven bond yields fell. In short order, though, despite the continuing risks of a US-Iran conflict and the implications that it would have for markets, the view that both sides would eschew further escalation calmed investors and reversed these price movements, with equities even approaching new highs.

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    That turnabout reflects two assumptions. First, markets are banking on the fact that neither Iran nor the US wants a full-scale war, which would threaten both the Iranian regime........

    © Project Syndicate