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Intense Middle East tensions take a toll on equities markets' strong start in 2020

posted onJanuary 8, 2020

New Year optimism, which had pushed world equity markets to new records, evaporated  on the back of renewed unrest in the Middle East, with investors dumping equities in favour of traditional safe havens.

Iranian Major-General Qasem Soleimani, head of Tehran’s elite Quds Force, was killed early on Friday (Jan. 3) by a U.S. airstrike on his convoy at Baghdad airport. The attack has heightened already-volatile relations between Washington and Tehran. 

The death of the top Iranian military commander-who was also one of Iran’s most influential figures- sent shockwaves through the Middle East and beyond and world leaders raised concerns about the possibility of an escalation of the conflict in the region. 

Oil prices jumped 3% on Friday on fears of a supply disruption. 

Over the weekend, Iran said that it would no longer abide by uranium enrichment limits agreed under the 2015 nuclear deal, which the U.S. unilaterally withdrew from in 2018. 

Meanwhile, Iraq’s parliament passed a resolution calling for the government to expel foreign troops from the country, following the U.S. airstrike carried out on its soil. Trump threatened sanctions against Iraq. 

Middle East

Middle East stock markets suffered losses on Sunday (Jan.5).  Bahrain's ASI slumped 2.26%, Amman's ASI declined 0.53%, Beirut's BLOM Stock Index fell 0.42% Omman's MSM30 was down 0.30%, Palestine's AL-Quds dropped 0.44% Qatar's Index plunged 2.14% Riyadh's TASI slipped 2.42%, Abu Dhabi's ADI depreciated by 1.42% while Tel Aviv's TA35 lost 0.55%. 

As investors fled from risky assets gold prices were near a seven-year high on Monday (Jan. 6). Spot gold hit $1,579.72, its highest since April 2013. The yellow metal is  is often seen as an alternative investment during times of political and financial uncertainty.

On currency markets, the safe-haven Japanese yen and Swiss franc rose against the dollar on Monday. The yen surged to a three-month high around 107.75 versus greenback, while the Swiss franc also rose against the dollar, which fell 0.2% to 0.9701 franc.

Following three days of mourning over the U.S. assassination of Soleimani, Iran launched more than a dozen ballistic missiles against U.S. and coalition forces stationed at multiple bases in Iraq on Wednesday (Jan. 8) morning as retaliation. The attacks reportedly caused no damage or casualties. 

"Iran took & concluded proportionate measures in self-defence," Foreign Minister Javad Zarif stated on Twitter. "We do not seek escalation or war, but will defend ourselves against any aggression."

Iranian Supreme Leader Ali Khamenei said that the Iranian attack on US troops in Iraq was "successful " but added that Iran does not want to escalated tensions with any country stressing "Iran is a country of peace."

US President Donald Trump responded to the attacks on Twitter: “All is well!” he said. Meanwhile, European Commission President Ursula von der Leyen and top European Union diplomat Josep Borrell called for dialogue amid rising tensions between the US and Iran. China's foreign ministry has also called on the parties involved to refrain from aggressive action.

Oil remained around 1% higher while gold held at new seven-year highs after the missile attacks. Geopolitical tensions remain centre stage with markets clearly in wait-and-see and most participants remaining cautious.

UPDATE 08/01/2019 19:27

U.S. stocks advanced on Wednesday as Trump signalled de-escalation of U.S.-Iran conflict.
In his first official address after the attacks on two Iraqi bases that house U.S. forces the American President speaking from the grand foyer of the White House confirmed earlier reports that there were no American casualties as necessary precautions have been made. 

He also suggested that Washington is open to negotiations with Tehran. “We must all work together toward making a deal with Iran that makes the world a safer and more peaceful place,” Trump said.

His comments sparked a sigh of relief rally and buying interest picked up.