Daily Comment (December 21 2016)

by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] Happy Winter Solstice!

Market activity is clearly slowing as the year winds down.  Depressed market activity this time of year isn’t anything new; because of slow trade and thinning volumes, investors should refrain from reading too much into technical signals this time of year.

Foreign ministers of Iran, Turkey and Russia will meet today to discuss the resolution of the civil war in Syria.  The U.S. was purposely excluded from this meeting.  All three have differing motives in the region.  Russia has used the conflict to bolster its influence in the region and to show it is a globally influential power.  Iran wants to solidify the “Shiite Arc” from Tehran to Beirut.  Turkey wants to recreate the Ottoman Empire.

In the short term, Russia wants to ensure that Assad remains in power over whatever remains of Syria but wants to avoid being pulled into a quagmire.  Turkey wants to ensure that the Kurds don’t expand their influence on its southern border and create a de facto state.  Turkey also has no love for Assad and, if he remains the ruler of what remains of Syria, it doesn’t want to see his power expand.  Iran wants to bolster Assad but make him solely dependent on Tehran for continued power.  Iran also wants to quash any Sunni influence in the region.  None of the three necessarily trust each other.  Although Putin likely enjoys his turn on the stage in the region, he also has seen how easy it is to be pulled into a never-ending commitment.  Most likely, Russia wants to find a way to declare victory and withdraw.  This means Iran and Turkey are setting up for a conflict.  For now, IS remains the reason the war is being fought.  However, once IS falls, Iran and Turkey will have to decide how to manage the region.  The likelihood of persistent conflict is rising.

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