What started off as a minor pull back on worries over interest rate policy at the Federal Reserve in light of yesterday’s release of minutes from the central bank’s September 26 meeting has turned into a more serious sell off on news that U.S. Treasury Secretary Steve Mnuchin would NOT attend a global investment conference in Riyadh, the capital of Saudi Arabia. The conference, billed as “Davos in the Desert” had seen major withdrawals from leaders of other governments and major corporations, but until this morning Secretary Mnuchin was still planning the attend
The change in Mnuchin’s plans are announced after a meeting at the White House with President Donald Trump and Secretary of State Michael Pompeo. Pompeo has just returned from a trip to Saudi Arabia. His press event after meeting with Saudi leaders drew widespread global and domestic criticism for seeming to endorse without reservations Saudi claims that its leaders, and especially Crown Prince Mohammed bin Salman, the defacto ruler of the country, had no involvement in the murder of Saudi and Washington Post journalist Jamal Khashoggi at the Saudi consulate in Istanbul, Turkey. (The official Saudi position has gone from denial that Khashoggi had been murdered in the consulate to claims that he was killed there as a result of an interrogation gone bad by “rogue” security officials. The “rogue killers” theory was endorsed by President Trump yesterday.)
The reversal in plans by Secretary Mnuchin is a reflection of increased pressure from Congress–even Congressional Republicans–for a more “robust” U.S. response.“Mr. Khashoggi is dead,” Senator John Kennedy, a Louisiana Republican and normally a strong supporter of the administration, told reporters. “I don’t think the aliens abducted him. I don’t think he fell through a hole in the space-time continuum. I think he’s dead, and I think the Saudis killed him.” Florida Republican Senator Marco Rubbio tweeted “Must not accept a strategic alliance with #SaudiArabia which requires our silence when they butcher a political critic.”
As of 2 p.m New York time the Standard & Poor’s 500 was lower by 1.89% and the Dow Jones Industrial Average was down 1.77%. The Nasdaq Composite Index had tumbled 2.42%.
The CBOE S&P 500 Volatility Index, the VIX “fear index” was up 20.92%to 21.04.
Financial markets clearly fear that a crisis that looked like it would be swept under the rug could still blow up with the U.S. Congress imposing sanctions on Saudi Arabia and the Saudis retaliating by cancelling U.S. arms contracts and restricting the flow of oil to at least some the many countries that have been critical of the country’s actions.
