(Bloomberg) – The tone in global financial markets is subdued after a US airstrike kills a leading Iranian commander, fueling concerns over an escalation in tensions.
US stock futures eased and Asian stocks gave up their gains as oil rose with the yen and gold. Qassem Soleimani, a feared Iranian general who had extended his country's power to the Middle East through proxy militias, was killed on orders from U.S. President Donald Trump. The risk increased after Iranian leader Ayatollah Ali Khamenei said that "severe retaliation" was waiting for the Soleimani killers.
The shock news comes after most asset classes have had an excellent year in 2019 and US stocks are finishing one of the best years of the past decade.
Here are 10 analysts and money managers what this means for the market outlook:
Wei Li, head of iShares EMEA's investment strategy in London
“Within 24 hours, the mood changed by 180 degrees. This is very characteristic of the year that we expect for 2020: on the one hand, the fundamentals are getting a little better, the headlines in retail are getting a little better, on the other hand, there are often volatility attacks.
“Given the strong sentiment and fundamentals of bottoming and some recovery, we have seen investors take this opportunity to potentially buy the dip. Until we actually see concrete signs of uncertainty affecting growth, we could see that investors are very tactical during the event. "
Jurrien Timmer, director of Global Macro in Boston
“If I find a problem with the market, the Forward P / E is now 18 1/2. It essentially anticipated an expected earnings improvement, and now those profits have to get through, which I think they will. With a forward P / E of 18 1/2, however, there is not much room for error. So adding something geopolitical like this is not the same as adding a 15 P / E. And so the market remains a little vulnerable, at least in the short term. "
Societe Generale SA
Kit Juckes, chief FX strategist in London
"With tension increasing, gold is a winner and oil prices are higher too." Bond yields are lower, the U.S. stock rally has stalled but not dramatically reversed, and safe haven and oil-sensitive currencies benefit in the currency market, but it's the yen that is the clear winner.
“The most important level to be observed is probably EUR / JPY 120. This is likely to be the case unless it escalates further.
"Given the room for tension in the Strait of Hormuz, higher oil prices must be a risk for a long time."
Credit Agricole SA
Valentin Marinov, head of G-10 currency research in London, describes the time of the escalation as "unfortunate".
It could “destroy market hopes for a global economic recovery that will emerge from the cloud of trade war between the United States and China. Risk sentiment should also remain fragile because central banks may be slow to react or may simply not have the arsenal to respond appropriately. "
He calls the yen and the Swiss franc "attractive", while the conflict could weigh on "risk-related oil import currencies like the Korean won".
ING Groep NV
Antoine Bouvet, Senior Rate Strategist in London
"Recent episodes of tensions between the United States and Iran have not escalated significantly, but even with a relatively harmless outcome to this crisis, the supply of US government and federal bonds should continue until at least the next week."
Colombo Wealth SA
Alberto Tocchio, Chief Investment Officer in Lugano, Switzerland
"The" severe retribution "aspect may be what scares the markets, as this could mean that there will be a counterattack against American diplomats." Markets could use this excuse to take profits as sentiment and positioning may be too high.
"We would then use the potential weakness to increase our equity exposure."
Saxo Capital Markets Pte.
Kay Van-Petersen, global macro strategist in Singapore
"We are potentially switching from Proxy (Iran) to Proxy (Saudis and USA) to direct Iranian-backed forces against US forces."
“People won't be fully back at their desks until next week until mid-January, so illiquidity can lead to an overreaction downwards. Let's see how the next 24 to 48 hours go. Remember it's already a weekend in the Middle East. "
The oil gain feels "somewhat exaggerated" to be honest. However, this is positive for US defense spending, and even French defense stocks may experience an upswing later, he noted.
"So much for Trump's call home."
Covenant Capital Pte.
Edward Lim, money manager in Singapore
“This attack only highlights the geopolitical risk of the oil markets and the market, which may experience oil shortages in the first one or two quarters of 2020.
"We did nothing in the news as we already bought some oil stocks like CNOOC and Total when the oil traded near $ 60 in late 2019."
UOB Kay Hian (Hong Kong) Ltd.
Steven Leung, general manager in Hong Kong
“Investors are concerned that the situation in Iran will worsen as some retaliation may occur after the US attack. People will want to reduce the risk before the weekend. Shares have risen sharply in recent months, so any bad news flow is a reason to take profits. "
Mizuho Bank Ltd.
Ken Cheung, chief strategist for Asian currencies in Hong Kong
“The reversal in risk sentiment will keep Asian currencies under pressure. The USD index also seemed to find a basis. These factors are likely to result in profit taking on EM Asian FX. The magnitude could be increased by the low liquidity in the New Year holidays. "
(Updates with additional analyst quotes.)
– With the support of Jeanny Yu, Subhadip Sircar, Hooyeon Kim, Cindy Wang, James Hirai, Ruth Carson, Ksenia Galouchko, Matthew Miller and David Westin.
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