Global Equities

Global Equities Declines on US-Iran Face-Off, US PMI’s in Focus

Middle Eastern tensions dictate global equity price dynamics, fresh US updates in focus. 

Middle eastern tensions
Iran’s Nuclear Deal

Summary: Global equities decline as the trading sessions began for the week reversing most of the gains made over the course of the last two weeks. While the New Year started on a positive note, comments from Iran over the weekend made following US attack on two of its top officials last week comes as a major blow to the global political and economic outlook. Iran made it clear that it is going to restart enriching radioactive materials without limits making it clear that it has backed out of the nuclear deal.

As President Trump has retaliated with threats against Iran over its move, investors across the global fear the possibility of full-blown war breaking out between the US and Iran which could also impact Iraq and its oil supply given Iran’s backing to the militia’s in Iraq. This caused a decline in the global economic growth outlook affecting Risk appetite in the market. While safe-haven assets seem to be in high demand, major forex pairs saw relatively mixed activity in the global market today. 

Precious Metals: Having scaled fresh 4-month highs last week, gold continues to trade positive as demand for safe-haven metals continues to rise over recent escalating in geo-politics. Today’s risk-averse mood also favors other precious metals resulting in silver and other rare metals also trading on a positive note. 

Crude Oil: Crude Oil price shot through the roof today as weekend headlines saw tensions in the Middle East escalate over comments from Iran on its move to renege from the nuclear fuel enrichment limit deal. This caused worries on possible war breaking out and crude oil supply disruptions pushing the price to new highs with futures in the global market seeing price scale $70 per barrel.

AUD/USD: The pair is trading flat in the global market today. As Middle Eastern tensions escalated and the price of crude oil shot up, risk aversion took hold taking the wind out of AUD bulls. Meanwhile, demand for USD rose over its status as Pseudo safe haven currency resulting in pair trading flat for the majority of the day’s session while there was also a slight bias in favor of USD earlier in the day. 

On The Lookout: Further updates on proceedings on Middle Eastern tensions remain the main focus of investors as they wait for signs of a concrete move by the US and Iran before placing major bets. However, bullish fundamentals remain in place as events ahead of Jan -15 meeting to sign trade deal between China and the USA seem to be heading in a favorable direction.

On Brexit front, having passed its first hurdle in December last year, Brexit bill is set to go through detailed examination in the UK parliament post which is set to pass its second stage of the approval process in a meeting starting tomorrow. Given the overwhelming victory of the ruling party in the latest elections, the bill is expected to pass successfully by Thursday. On the release front, traders await Canadian RMPI data and US Markit composite & services PMI’s.  

Trading Perspective: Given the demand for safe-haven assets and currencies, major forex pairs are likely to see range-bound price action with slight dovish bias. Risk aversion led by weekend headlines on the Middle Eastern crisis has resulted in US futures trading in the international market seeing a sharp decline. This along with cues from Asian and European exchanges suggest the possibility of Wall Street opening on dovish note post which latest headlines from the US are expected to drive price action. 

EURUSD: The pair is trading on a positive note despite prevalent risk aversion as European macro data saw better than expected outcome providing EURO bulls with some level of fundamental support. However, gains were capped on USD’s demand stemming from prevalent risk aversion. Traders await US data for short term profit opportunities. 

GBPUSD: Similar to the EURO, the British Pound is trading on a positive note as they both follow nearly the same fundamentals. Further, expectations for positive proceedings on Brexit front in parliamentary session this week set to begin tomorrow also underpins GBP bulls. Traders now await US data for short term profit opportunities and Brexit headlines for directional cues. 

USDCAD: The pair is trading with sharp loss as crude oil price shot through the roof today. While USD is backed by broad-based risk currency sell-off and demand on its Pseudo-safe-haven status, a sharp spike in crude oil price provides the commodity-linked currency with favorable fundamentals. The bias in favor of CAD is overwhelming as supply disruption concerns from the Middle East boost demand for crude oil from other major suppliers. Traders now await US and Canadian data for short term profit opportunities. 

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