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Investors pause equity selling as fears of immediate Iran-U.S. escalation abate

Stock Markets Jan 08, 2020 04:32AM ET
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By Sujata Rao

LONDON (Reuters) - European shares fell on Wednesday and U.S. equity futures pointed to weakness on Wall Street after Iran's attack on U.S.-led forces in Iraq, but earlier sharp market moves were starting to fade as fears abated that the raid would lead to an immediate military escalation.

Hopes grew the United States would stop short of strong retaliation after U.S. President Donald Trump tweeted "All is well!", and "So far, so good!".

Iran's Foreign Minister Mohammad Javad Zarif also tweeted that the Iranians "do not seek escalation or war".

Futures for the S&P500, down almost 2% at one point, were trading just 0.10% lower by 0830 GMT, while Asian equities closed off their lows and Japan's safe-haven yen stabilized.

Oil remained around 1% higher while gold held at new seven-year highs after the missile attack on the Ain Al-Asad air base and another in Erbil in Iraq, hours after the funeral of an Iranian commander who was killed by a U.S. drone strike last week .

A U.S. official said the United States was not aware of any casualties from the strikes. Trump is expected to make a statement later on Wednesday.

"The live situation was optically quite dramatic but the important thing to focus on is the no-human-casualty dimension which gives ample space to de-escalate the situation," said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers.

"The Trump factor is the random factor but what's visible is that no one wants war and that's what markets are focusing on."

A pan-European equity index opened 0.5% lower though it remains just 1.2% off record highs hit at the end of 2019, its losses limited by a half-percent gain in energy shares. MSCI's index of global equities pulled back 0.2%.

Futures for all three U.S. indexes were lower but they had clawed back most of their earlier falls.

Asian losses were greater, with Chinese shares closing more than 1% lower, Japan's Nikkei losing 1.6% and an MSCI ex-Japan Asian benchmark falling 0.6%.

Some reckon markets are now in wait-and-see mode, with a hawkish statement from Trump or more attacks by Iran the likely driver of the next stage of the risk selloff.

"If you see U.S. treasuries rallying a bit this morning, expect them to rally quite a bit further should there be a forceful response from the United States, which I'd imagine there would be...from a market perspective I think this one could run and run," Rob Carnell, Asia-Pacific chief economist at ING in Singapore.

The yield on benchmark 10-year U.S. Treasury notes stood at 1.7951, down from a U.S. close of 1.825% on Tuesday, but well off session lows around 1.705%. German 10-year yields were at minus 0.287% versus an earlier low of minus 0.299%

U.S. 10-year Treasury futures had earlier peaked at their highest level since November, and were last up 0.18%.

On currency markets, the attacks had sent the yen spiraling to three-month highs beyond 107.7 per dollar but gave up all those gains to trade flat at 108.4. Another safe-haven currency, the Swiss franc, also gave up knee-jerk gains.

"If the market was really worried that the end of the world was nigh, dollar/yen would have collapsed, and that's clearly not been the case," said Stuart Oakley, global head of flow FX at Nomura in Singapore.

The euro was 0.2 weaker, buying $1.1137 and the dollar index, which measures the greenback against six major peers, was flat lower at 97.0.

The buying of gold and oil also eased as the trading session wore on - global benchmark Brent crude futures which had shot $70 per dollar to their highest since mid-September, were last up 0.5% at $68.1 per barrel.

Gold which earlier brushed through $1,600 an ounce, eased to $1,582. [GOL/]

Lombard Odier's Ahmed said he had not reduced equity holdings overall but had increased exposure to energy stocks.

"We adopted a long oil hedge to portfolio and we are maintaining that... oil may be one market that's not reflecting geopolitical risks."

Investors pause equity selling as fears of immediate Iran-U.S. escalation abate
 

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Comments (8)
Honor Uzivatel
Honor Uzivatel Jan 08, 2020 6:03AM ET
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Netanjahu deklared open season on americans. Thans to Trump sionism.
Buzzy Jefferson
Buzzy Jefferson Jan 08, 2020 6:03AM ET
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English please.
Tumelo Mash
Tumelo Mash Jan 08, 2020 5:28AM ET
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Its currently sitting at $1584... All I'm going to say is buy gold. The is no point in waiting for casualties Trump is a man of High Power who loves using it to threaten his enemies so Gold and slow US ECONOMIC GROWTH GOLD MIGHT EVEN TOUCH $1650
Dee Mehta
DMFINANCE Jan 08, 2020 5:23AM ET
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I am thinking whi the mysterious investors are apart from fed and treasury.
ATOMIQ ILYA
ATOMIQ ILYA Jan 08, 2020 3:03AM ET
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Peace!
Ibrahim Yamout
Ibrahim Yamout Jan 08, 2020 1:15AM ET
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May the gold price reached 1,800$.?
Stephen Wong
Stephen Wong Jan 08, 2020 12:21AM ET
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Its all market manipulation. Trump needed to cover his longs
Super Vicious
Super Vicious Jan 08, 2020 12:21AM ET
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lol
Sean Dennehy
Sean Dennehy Jan 08, 2020 12:21AM ET
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I totally agree with you Stephanie seems prepared and slated for midweek
Abe Lincoln
Abe Lincoln Jan 07, 2020 10:52PM ET
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And now Crude is back down 2.50 dollars a barell.. Over reactions and the US in the Number 1 exporter of oil in the World!
Robert Sharp
Robert Sharp Jan 07, 2020 10:16PM ET
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If there are no injuries/casualties then it was just Iran trying to pull us into a more severe conflict to hurt Trump without actually trying to hit Americans knowing that would absolutely get a devastating response.. that or their weapons ***
Robert Sharp
Robert Sharp Jan 07, 2020 10:16PM ET
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that or their weapons su(c)k..
Lake Lot
Lake Lot Jan 07, 2020 10:16PM ET
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We have many weapons no one even has a clue of
Xin Zhang
Xin Zhang Jan 07, 2020 10:16PM ET
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no, they are helping Trump to justify the attack on Friday. This attack is more like a bluff if there is not casualties, then I think the tension is going to ease from both sides.
 
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