Markets unhappy with war of words
An auspicious end to 2019 has been met with an uncertain start to 2020 following last week’s death of Iran’s top military commander General Qassem Soleimani at the hands of the US. A heavy war of words between both sides as well as ongoing developments saw broad risk-off price action unfold in fairly typical fashion during Asia trading.
USD and bonds were bid, USDJPY fell into 108, Crude breached US$70/bbl and Gold soared making new six-year highs. There won’t be much cheer at the open for FTSE with futures suggesting a 40pt drop, while DAX looks to a proportionally dismal 125pt fall at the open.
Risk premiums widen on unpredictable Iran
It seems that risk premiums, pre-empting an expected retaliation from Iran, are slowly creeping back into the equation for global markets. Though, it remains unknown what the magnitude, directness and nature of Iran’s retaliation will be, and in turn, the ramifications for what is likely to now be considered a lengthy conflict with no end in sight.
Iraq has already called for foreign troops to depart Iraqi lands while Iran is further distancing itself from a UN nuclear deal. Given how rosy Q4 2019 was, I expect tensions, likely to stick around in the near-term, to translate to more knee-jerk reactions should soundbites suggest further escalation.
Gold breaks Q3 highs as Crude soars
A classic demonstration of risk-off, markets took to Gold with no hesitation pushing the shiny metal well past Q3 2019 highs of US$1,557. The gain of 1.52% sees the risk-off hedge ink new highs not seen since 2013. Fears that Iran will disrupt major oil infrastructure, not dissimilar to when drones attacked Saudi Arabia, also saw Crude futures gap at the open and sustain above key psychological level of US$70/bbl.
