World markets seek safety after a weekend of threats
The price of gold hit its highest in nearly seven years, oil hit a four-month peak and stocks were in the red across Asia and Europe, with Gulf stocks from Kuwait and Saudi Arabia down and S&P futures lower, as tensions between the U.S. and Iran ratcheted up over the weekend.
What happened: President Trump warned in a tweet that if Iran retaliated for the killing of General Qasem Soleimani last week it would face "very hard and very fast" attacks on 52 targets.
- His threat followed one from Iranian leadership that the U.S. would face "severe retaliation" and a decision by Iraq's parliament asking U.S. and other foreign troops to leave the country after Soleimani was killed in a U.S. airstrike near Baghdad.
- Perhaps most notably, Iran said it would no longer restrict its uranium enrichment, increasing the threat it could develop a nuclear weapon.
Of note: Safe-haven assets like U.S. Treasuries and the Japanese yen also saw buying, with the dollar touching its weakest in three months against the yen.
Yes, but: While the war of words has many on edge and fearing the worst, for financial markets much of the reaction seen since Friday's airstrike will be short-lived, if history is a guide.
- A hedge-fund analysis from Kensho cited by CNBC found that crude prices see a positive change more than 80% of the time in the month following major Middle East crisis events, along with a temporary bump for gold, with stocks as the next most successful short-term asset classes.
- Over a three-month horizon, data show that stocks and oil continue to rise, while safe-haven assets like Treasuries fall and gold is flat.
What to watch: The attack on Soleimani and coming fallout will most acutely impact the oil market, analysts say.
- “The risk of further escalation has clearly gone up — given the direct attack on Iran, Iran’s threat of retaliation and Trump’s desire to look tough — posing the threat of higher oil prices,” Shane Oliver, chief economist at AMP Capital, told Reuters.
- “Historically, though, oil prices need to double to pose a severe threat to global growth and we are long way from that.”