Yemen escalation
A surprise series of attacks overnight by a Saudi Arabian-led coalition against the rebel Houthi movement in neighbouring Yemen sparked an immediate switch to risk-off in markets worldwide. And as analysts fretted about the potential for this conflict to escalate into a wider regional war, investors fled to safety with oil, gold and the Japanese yen being particular beneficiaries.
Ole Hansen, Saxo Bank's head of commodity strategy, explains that Yemen's apparently disproportionate influence on global market sentiment is tied both to its geographical situation and the familiar Iran/Saudi (Sunni/Shiite) antagonism. "Three million barrels of oil go through the Gulf Straits every day towards Europe." That said, a substantial French and US navy presence in the region should help keep the flow going even should this conflict heat up a notch or two, and well-stocked oil inventories should help tame oil's advance.
As for oil itself, "we've been on a tear overnight," says Hansen. In Asian trade, oil prices earlier spiked nearly 4% to 51.98. "We've retraced quite a bit of the losses since the February slide," Hansen says.
Yen reigns supreme
On the FX front, Japan's yen is the stand-out beneficiary of the geopolitical wobble and it's putting on its habitual display of risk-off-inspired strength against a wide array of currencies. "Several JPY crosses are in free fall," says John J Hardy, Saxo's head of FX strategy. USD/JPY is entering a key support zone on the daily chart, defined by the 100-day moving average at 118.84 and the 55-day moving average at 119.10. Meanwhile, the daily Ichimoku Cloud shows support at 118.75 and "things could start getting very interesting on a break", says Christoffer Moltke-Leth of Saxo's Singapore trading desk.
Bonds bolstered
In fixed income, bonds are also gaining on the back of the Yemeni crisis though core bonds are less affected than their peripheral counterparts. The German benchmark is trading at 158.20 and yielding 0.22% while its US counterpart closed at 1.93% yesterday. Meanwhile, Greek yields have edged lower to 18.5% (off their 23% high), as tensions surrounding the prospect of a settlement to the Greek debt problem abate.
"Greece is the place to be if you believe that it will repay every single cent of its huge debt," says Michael Boye of Saxo's fixed income team. But he adds a strong note of caution: "These high yield levels really indicate the market's belief that this will happen."