Risk off continues as Middle East tensions escalate

 

Equities extend Friday’s losses

The war of words (so far) between the US and Iran escalated at the weekend, and this has taken its toll on global equity markets at the start of this week. US indices extended Friday’s losses by between 0.39% and 0.44% while the Australia200 index was the under-performer of the session with losses of 0.48%. Japanese markets re-opened after an extended New Year holiday with losses of 0.30%.

In contrast, currency markets were relatively calm with the Japanese yen out-performing amid safe haven demand. USD/JPY fell for a sixth consecutive day, the longest stretch since December 2018, dropping 0.12% to 107.98. The pair opened below the 100-day moving average this morning, the first time since October 9.

 

USD/JPY Daily Chart

Source: OANDA fxTrade

 

Other currency pairs were mixed but little-changed, with EUR/USD up 0.07% at 1.1166, GBP/USD up 0.06% at 1.3087 and AUD/USD slipping 0.02% to 0.6946. Oil prices jumped on supply disruption possibilities, with WTI surging to the highest in more than eight months.

 

Revenge for retaliation

US President Trump has been back on Twitter for the past few days, warning Iran that if it targets US assets as revenge for last week’s airstrike, the US has labeled 52 Iranian sites, including cultural and historic sites, which it will not hesitate in “hitting very fast and very hard”.

Iran in the meantime has said it will no longer adhere to the 2015 nuclear agreement signed with overseas powers and the limits on uranium enrichment and weapons stockpiling.

There appears to be no current solution to the standoff and the risk-off mood overhanging markets appears to be here to stay in the near term.

 

China services PMI slides

The Caixin services PMI fell to 52.5 in December, down from 53.5 in November but still above the 50 contraction/expansion threshold. The official China services PMI also showed a downward bias, data released on December 31 showed. That reading slid from 54.4 to 53.5, but has been steadily above 50 since March 2012.

In other data, released today, Hong Kong’s manufacturing PMI improved from a record low of 38.5 to 42.1 last month. Japan’s Jibun Bank manufacturing PMI slid to 48.4 from 48.8 in December.

 

Busy European calendar

The European session kicks off with German retail sales for December, which are expected to rise 1.0% m/m, a smart turnaround from November’s 1.9% decline and could imply that the German consumer was out in force spending ahead of Christmas.

Final Markit services PMIs from across the region are due today, including Germany, the Euro-zone and the UK. The final US reading is also due, with the first estimate suggesting an improvement to 52.2, the highest since August.

 

The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

 

 

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.