Here’s What Market Strategists Say About the Middle East Tumult
Bloomberg
Published Jan 02, 2020 11:18PM ET
Updated Jan 03, 2020 01:03AM ET
Here’s What Market Strategists Say About the Middle East Tumult
(Bloomberg) -- So much for the bullish start to this year for risk assets.
Global markets pivoted from optimism over a U.S.-China trade deal to fears about conflict in the Middle East after a U.S. airstrike killed a top Iranian commander in Baghdad. Oil spiked, while haven assets from the yen to gold rallied. U.S. stock futures dropped and Asian shares reversed gains.
The news that Qassem Soleimani, a feared Iranian general who through proxy militias extended his country’s power across the Middle East, was killed at the direction of U.S. President Donald Trump, has injected new uncertainty into a market narrative that has been underpinned with a positive tone for weeks as a stellar 2019 across most asset classes came to an end.
Tensions between the U.S. and Iran have been flagged by strategists for months as a geopolitical trigger, but amid optimism about the global economy, stimulus from China and upward momentum in risk assets, had been on the back burner until just a few days ago.
Here’s what some analysts are saying about the current situation.
Saxo Capital Markets Pte.
Kay Van-Petersen, global macro strategist in Singapore
“We are moving potentially from proxy (Iran) versus proxy (Saudis and U.S.) to potentially direct Iran-backed forces versus U.S. forces.
“People are still not back on their desks fully until next week to mid-January, so illiquidity could give us some overreaction to the downside. Still, let’s see how the next 24 to 48 hours play out. Remember, it’s the weekend already in the Middle East.”
Convenant Capital Pte.
Edward Lim, money manager in Singapore
“This attack merely highlights the geopolitical risk of the oil markets, and the market undergoing a possible oil shortage in the first one to two quarters of 2020.
“We didn’t do anything on the news as we have already bought some oil stocks such as CNOOC and Total when oil was trading close to $60s at the end of 2019.”
INTL FCStone
Mingze Wu, a foreign-exchange trader in Singapore:
It was a surprise to see the dollar moving significantly against Asian currencies even though “the news shouldn’t impact Asia directly and we’re talking about at least two to three degrees of separation. This overreaction can be attributed to a rally in gold and also the Japanese yen, both classic safe havens. That highlights the magnitude of market risk aversion right now from the news.”
The 108.00 level on dollar-yen will be of significant interest as we’ve not traded below this level since early November.
“Ultimately this is likely to have been exacerbated by thin liquidity and we may see equally swift pullbacks -- this is assuming that U.S. markets remain buoyant tonight.”
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UOB Kay Hian (Hong Kong) Limited
Steven Leung, executive director in Hong Kong
“Investors are worried that the situation in Iran will worsen, since there could be some retaliation after the U.S. attack. People will want to cut risk ahead of the weekend. Stocks have rallied a lot in the past month or so, so any bad news flow is a reason to take profit.”
Mizuho Bank Ltd.
Ken Cheung, chief Asian FX strategist in Hong Kong
“The reversal of risk-on sentiment will keep Asian FX under pressure. The USD Index also appeared to find a footing. These factors will probably prompt profit-taking flow on EM Asian FX. The magnitude could be amplified by thin liquidity during the New Year holiday.”
TD Securities
Mitul Kotecha, senior emerging market strategist in Singapore
“Risk appetite has worsened as reflected in the weakness in high-beta currencies in the region in particular. Much now depends on whether there is any retaliation. In the near term, losses in risk assets are likely to be contained.”
Credit Agricole (PA:CAGR) CIB
David Forrester, a foreign-exchange strategist in Hong Kong, who predicts the yen could rise to 106 per dollar by the end of the first quarter
“The market is pricing in risk of a potential Iranian response to the U.S. air strikes, which is pushing up gold and oil prices as well as the yen.
“There has been a lot of good news priced into the market in terms of the U.S.-China trade deal and U.S. economic growth. U.S. ISM manufacturing data out later today will be critical in determining whether dollar-yen can break below its two-month trading range.”
Written By: Bloomberg
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