Iran’s retaliation did not take long. Last night, Iran launched a dozen ballistic missiles at two Iraqi military bases that housed US troops. Initially, the oil rose 3%, the Japanese yen surged to a three-month high, US stocks plummeted 1.5%, and gold surged above the $1,600 an ounce level following Iran’s attack. After the attack on the US-Iraqi airbases, markets saw the initial move be faded after reports from US and Iraqi sources claimed there were no casualties from the strikes.
The risk-off move further retraced its earlier gains after Iranian Foreign Minister Javid Zarif stated that Iran does not seek an escalation of war. President Trump also tweeted that “All is well…. So far, so good!”, also indicating he will make a statement this morning.
Wall Street seems convinced we will not see the US and Iran fully enter into a war. The conflict is far from over and it seems we could continue to see a prolonged period of proxy wars in the region. Iran needed to act swiftly, without leading an attack that delivered the loss of American forces. Iran can claim success in their attacking of two US-Iraqi bases and we could see the US refrain from a tit-for-tat response. All eyes are on President Trump this morning, with some insiders expecting him to somewhat de-escalate the situation.
Oil
Oil prices have erased all last night’s gains, but that could be temporary as some major tanking giants, Saudi’s Bahri and Petrobras Brasileiro SA have suspended sailing through the Strait of Hormuz. In order for oil prices to continue to rise energy traders will need to see a supply disruption or for the situation to remain volatile enough to see further tankers avoid passing through the Strait of Hormuz, a critical gateway to the world’s oil industry.
Oil prices could also see some support if the EIA weekly crude stockpile report shows another large drawdown. Expectations are for inventories to fall 3.2 million barrels, which would look small following last week’s 11-million-barrel draw, which was more of an end of the year draining of tanks.
Gold
Gold continues to be the favorite haven trade for investors as geopolitical risk premium is likely to remain and as central banks globally appear on hold. Gold seems to be in a sweet spot that will see further gains regardless whether a wave of risk aversion hits the markets or if the global rebound resumes, thus driving down the overvalued US dollar. Gold seems to be only at risk if we see a strong surge higher with US Treasury yields.
Bitcoin
Bitcoin seems to have room to run higher as it has cleared a couple key technical hurdles, a death cross and not breaking below the $6,300 level, the average cost to create a new Bitcoin. All eyes will be if Bitcoin can break above the $10,000 mark and make a run towards last year’s high.
