Pentagon heads to the war room
Global markets have been shaken in early Asia heading for the exits after Iran – who by their own admissions were assessing 13 revenge scenarios – launched an unexpected missile attack against multiple US military bases in Iraq. Fears, however, were proven to be short-lived with a decent portion of losses pared by 2pm AEDT as the Administration avoided an impulsive military response in the aftermath.
Instead, the President of the world’s most powerful military tweeted “so far, so good” ostensibly exercising the necessary restraint to squash calls for war against Iran, who also appear measured in their own right based on public statements – for the time being that is. A release from Trump is scheduled for Wednesday morning in the US, with details of the US response looking more and more critical to market proceedings and whether risk-off moves resume in the interim.
Risk-off bias sustains
Despite price action offering some temporary relief for risk assets, buying pressure continues to build for safe-havens in Gold and JPY given low visibility on the future pathway of US-Iran tensions. US Bonds have been a beneficiary finding a decent bid over the day, while Silver’s close correlation keeps it boosted as well.
Gold surged to a seven-year high breaking a key psychological level in US$1,600, pushing as high as US$1,610. The shiny metal is clearly a favoured hedge at the moment against geopolitical risk, with Crude unable to match Gold’s consolidation having faded a 5% jump at the open and potential disruptions to oil supply played down.
European equities not out of the woods
In European equities, investors are set to be dealt a blow at the start of trading with Asia’s week performance pointing FTSE, DAX and STOXX futures towards a negative open. This won’t do any favours for the likes of Aston Martin (AML) and Morrisons (MRW) which have been feeling the pinch as of late following bleak profit outlooks and competitive pressures. As some investors look to hedge portfolios that have ridden the exceptional 2019 surge across equities, it’s difficult to see how companies with lagging fundamentals like Aston Martin and Morrisons stay supported.
USD bears settled down following solid overnight data
Overnight, short USD theorists in 2020 have been somewhat checked after a number of important data points showed promise for the 2020 US outperformance story and saw the USD Index climb.US ISM Dec. Non-mfg PMI confirmed a solid finish to 2019 after seeing a 55 print exceed consensus forecasts of 54.5. Business activity numbers improved while m/m factory orders fell negative, though still better than expectations.
US International Trade Balance came in at -43.1bn against -43.8bn consensus, narrowing the US trade deficit from the prior month’s -46.9bn. While mostly attributed to lower imports as a result of the ongoing US-China trade war, this will likely see Q4 GDP figures boosted.
US Non-farm Payrolls, arguably a more significant input into the US growth equation, is due out on Saturday 12.30am AEDT. A beat here continues to support USD performance against G10 FX pairs, especially in NOK and SEK space whose domestic stories bode negative. But first, markets will look to how ADP National Employment prints at 1.15pm GMT – a precursor of sorts into the strength of NFP.
