Stocks, gold and oil whipsawed as Iran strikes spark fears of wider West Asian war; analysts say escalating tensions to keep markets on edge

  • Gold also fell below a key psychological level as initial fears eased and was 1.16 percent higher on the spot market at $1,592.18 per ounce, having earlier blasted through $1,600

  • Japan’s Nikkei was down 1.29 percent, also paring earlier losses of over 2 percent, while Australian shares clawed back from a more-than-1 percent drop to shed 0.18 percent

  • In commodity markets, global benchmark Brent crude futures shot back above $70 per dollar to their highest level since mid-September in the initial hours after Iran’s strikes

Shanghai: Financial markets were roiled on Wednesday after Iran fired missiles at US forces in Iraq, sending Asian stocks and US Treasury yields sliding and jolting oil prices higher as investors feared a wider conflict in the Middle East.

Iran’s missile attacks on the Ain Al-Asad airbase and another in Erbil, Iraq, early in the day came hours after the funeral of an Iranian commander whose killing in a US drone strike has intensified tensions in the region.

Early reports of the attacks sparked a sudden rise in risk aversion on worries over how the United States would respond. But by early afternoon, Asian equities had trimmed losses, the yen had stabilised somewhat and US bonds tempered their rally as investors paused for breath.

“We are getting exaggerated moves but that’s of course volatility playing. Markets simply hate uncertainty. It’s an old adage but it definitely holds true in the current situation—markets can price risks but they can’t price uncertainty,” said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.

US President Donald Trump said in a tweet late on Tuesday that an assessment of casualties and damage from the strikes was underway and that he would make a statement on Wednesday morning. Trump said that “All is well!” and “So far, so good!”.

A US official said the United States was not aware of any casualties from the strikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.5 percent around 0445 GMT, having dropped more than 1 percent earlier in the day. China’s blue-chip CSI300 index was 0.48 percent lower.

 Stocks, gold and oil whipsawed as Iran strikes spark fears of wider West Asian war; analysts say escalating tensions to keep markets on edge

Representational image. Reuters

Japan’s Nikkei was down 1.29 percent, also paring earlier losses of over 2 percent, while Australian shares clawed back from a more-than-1 percent drop to shed 0.18 percent. US S&P500 e-mini stock futures, which had earlier tumbled nearly 1.7 percent, were down 0.28 percent.

Rob Carnell, the Asia-Pacific chief economist at ING in Singapore, said a possible further escalation of tensions between Iran and the United States could still provoke a prolonged negative market reaction.

“If you see US treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the United States, which I’d imagine there would be...from a market perspective I think this one could run and run,” he said.

The yield on benchmark 10-year US Treasury notes last stood at 1.7864 percent, down from a US close of 1.825 percent on Tuesday, but up from session lows. US 10-year Treasury futures had earlier peaked at their highest level since November and were last up 0.24 percent.

The two-year yield fell to 1.5183 percent compared with a US close of 1.546 percent.

The yen, which had hit its strongest point against the greenback since October in morning trade, gave up most of its gains later in the day. The US currency was last down just 0.08 percent against the yen at 108.33.

The euro was 0.04 percent weaker, buying $1.1147 and the dollar index, which measures the greenback against six major peers, was 0.07 percent lower at 96.940.

In commodity markets, global benchmark Brent crude futures shot back above $70 per dollar to their highest level since mid-September in the initial hours after Iran’s strikes.

They were last up 1.36 percent at $69.20 per barrel, while US crude added 1.26 percent to $63.49 a barrel.

Gold also fell below a key psychological level as initial fears eased. The precious metal was 1.16 percent higher on the spot market at $1,592.18 per ounce, having earlier blasted through $1,600.

On Tuesday, shares on Wall Street had amid worries over US-Iran tensions. The Dow Jones Industrial Average fell 0.42 percent, the S&P 500 lost 0.28 percent and the Nasdaq Composite dropped 0.03 percent.

Analysts say the escalating West Asia tensions are likely to keep markets on edge.

“If it does look like we’ve got US casualties, then I don’t think Trump is going to just stand back and take that,” said Matt Simpson, a senior market analyst at Gain Capital in Singapore. “World War III has been thrown around. I don’t think we’re there yet. But it does look like Iraq II.”

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Updated Date: Jan 08, 2020 11:37:36 IST