Comment by Ranko Berich from Monex Europe
Iran hit US-Iraqi bases with more than a dozen missiles as a response to an air strike last Friday that killed the top Iranian general Qassem Soleimani. The direct attack on American forces on the region risks further action from President Donald Trump, which tweeted “All is well” in the aftermath of these events. Iran's attack brought a fresh wave of volatility into global assets, which somewhat faded after Tehran stated that it was not seeking war. The S&P500 Index was down as much as 1.70% before paring losses, while 10-year bills dropped more than 11 basis points to 1.70% to shortly recover to its previous level. Gold initially jumped to its highest since 2013 above $1600 an ounce and WTI crude oil rose by 4,4% to retreat later on. The USD swiftly recovered from a 0.8% dip against the JPY following the attacks. President Donald Trump will make an early statement on Wednesday morning, which will prove key to markets when reassessing geopolitical risks.
The single currency dipped yesterday against the USD as geopolitical tensions triggered a strong demand for safe assets along the trading session. Despite the initial relief of European equities and the 8-month high CPI figure at 1.3% in the Eurozone released yesterday, higher Bund yields revealed a reduced appetite for the euro. The currency continues to dry this morning after the German factory orders in November surprised to the downside. The monthly print slipped by 1.3%, well below the 0.2% increase forecast. The annual rate fell to -6.5% from a revised -5.6% in October, underperforming the -4.7% expected. The detailed figures show another grim outlook for the largest Eurozone economy, with demand primarily held back by a 3.1% month-to-month plunge in export orders, offsetting a 1.6% increase from domestic demand.
Sterling sold off marginally against the USD yesterday, while the strength of the greenback filtered through the entire G-10 currency board on a hectic session. Brexit headlines have been somewhat overlooked in recent days as markets currently price a smooth ratification of Boris Johnson's Brexit deal by the end of the month, given the strong Conservative support in Parliament. The Prime Minister will meet today with European Commission President, Ursula von der Leyen, and EU Brexit Secretary, Michael Barnier, for further Brexit discussions. Recent concerns of the European parliament on the UK government's attitude towards the 3.3 million EU citizens living in the UK will be central in the agenda.