Oil, safe havens surge after US strikes kill Iran commander

Traders work at the New York Stock Exchange January 3, 2020. — Reuters pic
Traders work at the New York Stock Exchange January 3, 2020. — Reuters pic

NEW YORK, Jan 4 — Oil prices surged as much as US$3 (RM12.31) a barrel as gold, the yen and safe-haven bonds all rallied yesterday after the US killing of Iran’s top military commander in an air strike in Iraq ratcheted up tensions between Washington and Tehran.

Traders were spooked after the death of Major General Qassem Soleimani, head of the elite Quds Force who was also one of Iran’s most influential figures, and by Iranian Supreme Leader Ayatollah Ali Khamenei’s vow of revenge.

US Secretary of State Mike Pompeo said the strike aimed to disrupt an “imminent attack” that would have endangered Americans in the Middle East.

The most dramatic moves were in the oil markets, with Brent crude futures leaping as much 4.5 per cent to US$69.20 a barrel, the highest level since Saudi crude facilities were attacked in September.

The impact hit almost every asset class.

MSCI’s gauge of stocks across the globe declined 0.52 per cent, while its emerging markets index lost 0.40 per cent.

Europe’s broad STOXX 600 index fell as much as 1 per cent, but pared losses to close down 0.33 per cent, while shares on Wall Street fell around 0.8 per cent as New Year optimism, which had pushed equity markets to record highs, evaporated.

The yen rose half a per cent against the dollar to a two-month high, the Swiss franc hit its highest level against the euro since September and gold prices climbed to a four-month peak, racing past the key US$1,550 an ounce level.

“Geopolitics has come back to the table, and this is something that could have major cross-asset implications,” said Salman Ahmed, Lombard Odier’s chief investment strategist.

“What is critical is how it pans out in the next few days,” Ahmed said. “Whether it turns into a theme depends on Iran’s reaction and then the US response.”

Iran promised harsh revenge. The Quds Force and its paramilitary proxies have ample means to mount a response.

In September, US officials blamed Iran for attacking the oil installations of Saudi Aramco, the state energy giant and the world’s largest oil exporter. Iran has denied responsibility for the strikes and accused Washington of warmongering.

The Trump administration then did not respond, beyond heated rhetoric and threats, and markets settled down within a week after Brent surged 14.6 per cent, its biggest one-day percentage gain since at least 1988, on September 16.

The US government and others yesterday urged their citizens in the region either to return home or to stay away from potential targets and public gatherings.

President Hassan Rouhani said the killing would stiffen Iran’s resistance to the United States.

Pompeo said in a round of TV interviews that the United States remained committed to de-escalation with Iran but that it had needed to defend itself.

“He (Soleimani) was actively plotting in the region to take actions — a big action as he described it — that would have put dozens if not hundreds of American lives at risk. We know it was imminent,” Pompeo told CNN.

Stocks on Wall Street opened down 1 per cent, the lowest point of the session, as losses were later pared a bit.

The Dow Jones Industrial Average fell 233.92 points, or 0.81 per cent, to 28,634.88. The S&P 500 lost 23 points, or 0.71 per cent, to 3,234.85 and the Nasdaq Composite dropped 71.42 points, or 0.79 per cent, to 9,020.77.

The global gauge and Wall Street indexes set record closing highs on Thursday, extending the year-end rally in equities into 2020.

Brent settled US$2.35 higher at US$68.60 after rising as high as US$69.20.

West Texas Intermediate (WTI) crude rose US$1.87 to settle at US$63.05 a barrel, after earlier spiking to US$64.09 a barrel, its highest level since April 2019.

Scramble to safety

Yields on German Bunds and US Treasuries — the world’s benchmark government bonds that are typically seen as the safest assets — fell sharply.

The 10-year Bund yield fell 7 basis points to a two-week low of -0.299 per cent, while Bund futures were up 0.62 per cent at 172.33 euros.

Benchmark 10-year Treasury notes rose 26/32 in price to yield 1.7916 per cent, from 1.882 per cent late on Thursday.

Spot gold prices hit a high of US$1,553.20 an ounce. US gold futures settled 1.5 per cent higher at US$1,552.40.

The dollar index rose 0.05 per cent, with the euro down 0.09 per cent to US$1.116. The Japanese yen strengthened 0.41 per cent versus the greenback at 108.13 per dollar.

The focus on geopolitics meant markets paid little attention to stronger-than-expected data from France, where inflation rose 1.6 per cent year-on-year in December, beating analysts’ expectations for a 1.4 per cent rise.

German inflation figures were also higher, although unemployment in Europe’s largest economy rose more than expected.

The US manufacturing sector contracted in December by the most in more than a decade, with order volumes crashing to near an 11-year low and factory employment falling for a fifth straight month, the Institute for Supply Management said. — Reuters

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