And it was all going so smoothly, we had planned to write that it was a quiet week. Christmas a fading memory and the New Year with had some positive news on US-China trade relations, helping markets edge higher on Thursday night. Then came the biggest geopolitical act in months: a US drone airstrike killed Qasem Soleimani, the head of Iran’s elite Quds force, on the streets of Baghdad. It is hard to overstate how important a figure Soleimani was in Iran. He was accepted as Islamic Republic’s second most powerful leader, ahead of President Rouhani and behind only the Ayatollah. This is a massive step up in tensions between Iran and the US, and a significant increase in near-term global risks.
This event brings into contrast our recently discussion that both markets and the underlying economy are finely balanced. A return of confidence led to an ongoing rally in asset prices and the reduction in US / China political risks had created a large flow of cash into riskier investments.
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