Investor risk appetite roared back to life overnight, resulting in big reversals of the moves seen in crude oil, gold and stocks in Asia on Wednesday. After posting modest declines yesterday, SPI futures point to strong gains for the local market today.
1. US and Iran tensions remains big issue: The financial media continued to be dominated by US and Iran tensions yesterday. Global markets were sent into a tizz upon the release of news that Iran, in retaliation to the assassination of one of its top General’s, Qassem Soleimani, had attacked two US military bases in Iraq. The gut reaction from traders was ostensibly one of total risk-off: Asian equity markets and US futures tumbles, gold hit fresh 7-year highs, and oil prices climbed by as much as 5 per cent.
2. Markets welcome measured response: The panic in markets proved short-lived, however, after both the US and Iran signalled their desire to avoid all-out warfare. The Iranians stated that the strikes were a “proportionate” response to the killing of Soleimani, and did not seek further conflict. And citing that there were no casualties amongst US military personnel, US President Trump tweeted that “all is well”, and in a speech delivered overnight, stated the US’s response to yesterday’s attack will be to apply greater sanctions on Iran.
3. A relief rally: Market participants welcomed the measured response from both the US and Iran. Oil prices unwound all of the gains sustained in the Asian during US trade. Bond yields have climbed, gold prices fell over 1 per cent, and the Japanese fell across the board, as traders exited their safe haven trades. European stocks edged higher, while the S&P500 added nearly 0.9 per cent. And after shedding 0.1 per cent on Wednesday, the ASX is expected to open nearly 70 points higher today.