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Stocks wipe out new year gains; gold, oil soar on U.S.-Iran threat

Stock MarketsJan 06, 2020 07:29AM ET
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© Reuters. Traders look at financial information on computer screens on the IG Index trading floor

By Ritvik Carvalho

LONDON (Reuters) - Tensions in the Middle East after the United States killed an Iranian general erased new year's gains for world stocks on Monday as investors pushed safe-haven gold to a seven-year high and oil jumped to its highest since September.

The United States detected a heightened state of alert by Iran's missile forces, as President Donald Trump warned the U.S. would strike back, "perhaps in a disproportionate manner", if Iran attacked any American person or target.

Iraq's parliament on Sunday recommended all foreign troops be ordered out of the country after the U.S. drone attack killed the Iranian military commander and an Iraqi militia leader.

Spot gold gained 1.8% to $1,579.72 per ounce to reach its highest since April 2013. Oil prices extended gains on fears any Middle East conflict could disrupt global supplies. Brent crude futures jumped past the $70 a barrel mark, while U.S. crude climbed 1.7% to $64.12.

European shares extended losses and were set for their worst day in a week, with the pan-European STOXX 600 index down 1% by midday in London. The European oil and gas stock index (SXEP) rose about 0.86%, the only gains, to reach its highest since July.

"Geopolitical events by their nature are unpredictable, but previous periods of increased tensions suggest that the impact on wider markets tends to be short-lived, with more lasting effects confined to local markets," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

"In general, this supports holding a diversified portfolio."

NEW YEAR GAINS ERASED

MSCI's All-Country World Index, which tracks shares in 47 countries, was down 0.34%, erasing all its new year's gains in its biggest two-day fall since early December.

In Asia, Japan's Nikkei (N225) slid almost 2%. E-Mini futures for the S&P 500 fell 0.6%, indicating a lower open on Wall Street later.

Chinese shares, which had opened in the red, reversed their losses, as did Australian shares, which ended the day flat. Hong Kong's Hang Seng index (HSI) lost 0.8%.

Sovereign bonds benefited from the safety bid, with yields on 10-year Treasuries (US10YT=RR) down at 1.7725% after falling 10 basis points on Friday.

The yen remained the favoured safe haven among currencies thanks to Japan's massive holdings of foreign assets. Investors assume Japanese funds would repatriate their money during a true global crisis, pushing the yen higher.

"You can't accuse the markets of over-reacting," said Societe Generale (PA:SOGN) strategist Kit Juckes. "FX moves are small, slightly lower bond yields, slightly softer equities, but nothing is going mental."

On Monday, the dollar was last at 108.05 yen , after falling to a three-month trough of 107.77 earlier in the session.

The dollar was steadier against other majors, with the euro up at $1.1202 (EUR=). Against a basket of currencies, the dollar was holding at 96.562.

Stocks wipe out new year gains; gold, oil soar on U.S.-Iran threat
 

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Comments (8)
Crude Prince
Crude Prince Jan 06, 2020 9:56AM ET
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We can’t afford war anymore. Please send back our oil price to $53
ATOMIQ ILYA
ATOMIQ ILYA Jan 06, 2020 7:42AM ET
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Peace!
Rajinder Kumar
Rajinder Kumar Jan 06, 2020 4:19AM ET
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really
Charles Kao
ckao Jan 05, 2020 8:30PM ET
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Where's the oil bears and their technical charts ?
Azam Khan
Azam Khan Jan 05, 2020 8:26PM ET
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Gold may reach 1600 today due to Iran and US unrest.
Azam Khan
Azam Khan Jan 05, 2020 8:25PM ET
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Oil will reach 70 in no time if this tension goes like this and may be 80
Joshua Hunt
Joshua Hunt Jan 05, 2020 8:25PM ET
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100
Dave DoggyDogg
Dave DoggyDogg Jan 05, 2020 8:25PM ET
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if it hits 80 then ill short it back to 75, as long as the politics dont get too too too out of hand
Wayne Rollins
Wayne Rollins Jan 05, 2020 7:08PM ET
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who wrote this it's a beautiful V right now.
Kaveh Sun
Kaveh Sun Jan 05, 2020 6:49PM ET
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I said once oil breaks 60, 72 is the target.
 
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