Stocks march back to record highs as Middle East tensions ease

Reuters London Jan 10, 2020, 06.26 PM(IST)

Stock information at a brokerage office Photograph:( Reuters )

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Markets have swiftly reversed the sharp falls seen at the start of the week after the United States killed Iran's most senior general, as investors have concluded that a full-scale military confrontation is unlikely.

World stocks set new record highs on Friday and the prices of safe-haven assets such as gold pulled back as investors cheered an apparent de-escalation in US-Iran tensions and looked instead toward prospects of improved global growth.

Markets have swiftly reversed the sharp falls seen at the start of the week after the United States killed Iran's most senior general, as investors have concluded that a full-scale military confrontation is unlikely.

The MSCI world equity index, which tracks shares in 49 countries, has quickly resumed its rally and added another 0.12 percent on Friday to hit a new record high. It is almost 1.5 percent above the lows seen on Monday.

European shares also rose, although not quite hitting new records. The pan-European Euro Stoxx 50 gained 0.1 and the German DAX 0.23 percent, while Britain's FTSE 100 was unchanged.

The three major share indexes on Wall Street touched new record highs on Thursday, and S&P 500 futures were 0.28 percent higher, pointing to a stronger open ahead of all-important US non-farm payrolls data due at 1330 GMT.

A Reuters poll of economists is forecasting the US economy will have added 164,000 jobs in December, down from 254,000 in November, typically a strong month for hiring. Investors will also be focusing on underlying wage growth data for a gauge of underlying labour market strength.

Stock markets have got off to a decent start in 2019 despite US President Donald Trump's decision to kill military commander Qassem Soleimani, the second most powerful figure in Iran, in a missile strike in Baghdad.


"In the space of a few days we appear to have swung full circle; with investors seem convinced that the problems in the Middle East appear to have settled down, at least for the time being," said Michael Hewson, chief markets analyst at CMC Markets.

"Investors now have the opportunity to focus on the signing of the new US-China phase one trade deal next week, as well as the health of the US economy today, and in particular the labour market which has continued to look resilient," he added.

Adding to the bullish mood, investors welcomed news that sales of Apple's iPhones in China in December jumped more than 18 percent on the year. They digested the report as a prelude to the upcoming visit by China's Vice Premier Liu He, head of the country's negotiation team in Sino-U.S. trade talks, to Washington next week to sign a trade deal.

MSCI's emerging market currency index, although little changed on Friday, hit 1-1/2-year highs on Thursday in what is likely to be its sixth straight week of gains. It has also benefited from three US rate cuts last year.

Safe haven assets extended their drop.

Gold eased 0.1 percent  to $1,550 per ounce from a seven-year high of $1,610.90 hit right after Iran's missile attack on Wednesday.

Against the Japanese yen, which investors often buy in times of uncertainty, the US dollar strengthened 0.2percent  to a two-week high of 109.65 yen.

The dollar was slightly firmer. The euro dropped 0.1percent to $1.1085, its lowest in about two weeks.

Oil prices, which briefly spiked at the start of the week on worries that tensions with Iran would disrupt global supplies, recovered some of their subsequent losses.

Brent crude rose 0.3 percent  to $65.57 a barrel and was heading for its first decline in six weeks and its biggest since October, down around 4.5%.

US crude oil rallied 0.22percent  to $59.69 a barrel but was also on track for its first weekly drop in six, falling 5.3% from last Friday's close.

Government bond yields, which rose on Thursday as investors' nerves about the situation in the Middle East eased, edged lower on Friday.

The benchmark 10-year German bond yield fell marginally to -0.221 per cent but for the week remains up 6 basis points, in a strong signal of investors' willingness to pull back from safe-haven government debt for riskier assets.

The 10-year US Treasury yield slipped to 1.852 percent  but it too remains up more than 6 basis points on the week.

"With risk appetite showing little sign of abating following another resurgent 24 hours in markets, the next potential hurdle to jump is the first payrolls Friday of the new decade," said Deutsche Bank macro strategists.