Oil, precious metals & defence stocks: The 3 ways markets are reacting to the US strike on Venezuela

Global defence stocks: The strike on Venezuela confirms a new era of hard power, a world in which might is right. This could embolden regimes in China and Russia and favours further rearming of Europe and Asia. Rheinmetall, the largest ammunition maker in Europe, rose 7% on Monday, as did military tech and surveillance specialistHensoldt. Leonardo, Renk, BAE Systems, Babcock and others all climbed sharply. 

In particular for Europe pressure on Greenland underscores rising tensions between the US and Nato allies at a time of Russian aggression, which should add further impetus to rearmament efforts among European nations. More on some of the questions and instant market reaction here.

Precious metals: The event adds to narrative of rising geopolitical risk premia and raises uncertainty around US policy, both of which favour gold as a hedging asset over the USD. Mounting geopolitical uncertainty has underpinned gold’s rapid advance last year and should continue to offer support as we consider a move towards $5,000/oz should the recent all-time high be taken out soon. Silver is also catching on with a 4% rally on Monday but we are yet to see if this is sustained.

Oil: For now, there has been limited impact on crude prices, with Brent initially lower, testing the $60 support before paring losses. Venezuela accounts for only 1% of global supply so there is limited impact on disruption near-term, whilst expectations for improving Venezuelan supply are rightly tempered by the knowledge that this would take considerable time and money. The best expression is via US companies with direct exposure to a possible US-led infrastructure rebuild – Chevron, Exxon Mobil and SLB jumped sharply early in London on Monday.