Risk-on returns as Trump de-escalates Iran tensions

Summary:

• Trump seems to end escalating tensions with Iran

• Move sends US100 to new all-time high

• Oil and Gold tumble back lower

• ADP raises hopes for NFP release

An eagerly anticipated speech from Donald Trump has caused a clear market reaction with the US president choosing to avoid any further escalation between Washington and Iran. The statement was in keeping with his tweet in response to the retaliatory attacks carried out by Iran overnight and for now investors can breathe a big sigh of relief. It may be a little presumptuous to assume this is the end of the matter, with tensions no doubt set to linger but the avoidance of any hints at further military action have calmed the market’s nerves

Indices have soared in response with the US100 leading the charge higher and moving up to its highest ever level. The US500 is trading not far from its record peak at the time of writing but the US30 is lagging behind somewhat. The reason for the underperformance can be explained in part by Boeing, with the Aerospace firm trading lower after one of its 737 planes crashed in Tehran in an incident unrelated to the recent geopolitical tensions. 

It is little surprise that two of the biggest gainers in recent session on the rising tensions in the Middle East have been amongst the biggest fallers today with Gold and Oil swooning. Oil is down by 3.8% on the European close while Oil.WTI has fallen further to trade -4.2% on the day. Gold surged above the $1600/oz mark overnight to hit its highest level since the first quarter of 2013 but has since fallen back, with the precious metal now trading over $50 from its peak.  

Gold remains very much in focus and a special report on the market can be found here. 

This theme that has gripped the markets in recent sessions now seems set to take a less prominent place in investors minds for the time being and the focus may turn to other issues such as economic releases. On this front the release of a private measure for US job growth has raised hopes ahead of Friday’s more widely followed NFP report and points to a tightening labour market after some pronounced weakness in the final quarter of 2019. A reading for the ADP December employment change of 202k was above the consensus forecast for 160k and shows a marked improvement on the prior reading of 124k - revised up from 67k initially. The market reaction hasn’t been too large but the USD has built on further gains while both Gold and US bonds have moved lower. US Stocks trade near daily highs with the US500 at 3241 last.