Markets pare initial moves with Geopolitics in focus

Summary:

• Tensions between Iran and the West in focus

• Gold pulls back after tagging 6-year high

• Technical overview on Gold

• Oil.WTI closes the gap higher over the weekend

• Eurozone PMIs beat forecasts

Tensions in the Middle East continue to be the dominant theme for markets at the start of a new week with Oil prices pushing higher, safe haven assets such as Gold and government bonds gaining and stock markets pulling back. Oil earlier moved above the $70 mark to trade at its highest level since May while you have to go all the way back to 2013 to find a higher price for Gold, with the precious metal trading above the $1580/oz mark overnight. However, as the day has worn on these moves have been pared with Gold trading higher by 1% at the time of writing at $1565/oz.

A technical overview on Gold can be viewed here. 

There’s been similar price action across other asset classes with Oil.WTI falling back to touch the level it ended on Friday just before the end of the European session. Oil.WTI had earlier traded higher by around 2.5% but the early gains have since been handed back. There’s lots of headlines surrounding this topic and while it would be far too early to say that the worst of it is behind us, markets seem to be treating the absence of any further escalation throughout the day as a positive in the near-term.

The further ratcheting up of hostilities between Washington and Tehran caused some negative trade in US indices ahead of the opening bell with all the benchmarks trading lower by between 0.5-0.7%. However, these losses have been recouped with the US500 tagging Friday closing price of 3234 in recent trade. . In fact, with the VOLX trading with a 15 handle you could say there’s not too much fear around in the markets at present - certainly not as much as some of the more dramatic headlines are suggesting. This could obviously change very quickly and complacency should be warned against, but unless there’s a move back up to the 17 handle in the VOLX then the downside risk for indices appears to be not too great. 

 Overall the final services PMI readings from the Eurozone are pleasing with a Euro-area wide print for December coming in at 52.8 vs 52.4 expected (prior reading was 52.4). While this may not seem too impressive by historical standards it does mark the 3rd consecutive month in which this metric has topped estimates and also means that the composite PMIs are showing some encouraging signs after sustained weakness since the start of 2018. 

Having said that, the data does mean that according to these surveys the final quarter of last year was the worst since 2013 - when the bloc was in the midst of the debt crisis! The readings are also commensurate with a GDP growth figure of just 0.1% and show that economic activity in the Euro area has pretty much flat-lined.