What a US-Iran war could mean for world markets

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<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "The & nbsp;USA confirmedThat a top Iranian general was killed in Iraq on Friday by an American drone attack ordered by President Donald Trump. Geopolitical escalation and conflicts in the region are expected. "Data-reactid =" 15 "> The United States has confirmed that a top Iranian general was killed on Friday by an American drone attack in Iraq ordered by President Donald Trump, with geopolitical escalation and conflicts expected in the region.

For investors, however, the main question remains how a war between the United States and Iran would affect the markets.

"As the tension increases, gold becomes a winner and oil prices are higher," wrote Kit Juckes of Societe Generale on Friday morning. "Bond yields are lower, the US stock rally has stalled, but has only turned dramatically after reversing. Safe haven and oil-sensitive currencies benefit in the currency market, but the yen is the clear winner."

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "[[[[Follow Yahoo Finance's live blog for real-time information on today's market activity.]"data-reactid =" 18 ">[[[[Follow Yahoo Finance's live blog for real-time information on today's market activity.]

<p class = "Canvas Atom Canvas Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The tensions between the USA and Iran have intensified for some time but killing & nbsp;Iranian Maj. Gen. Qassem Soleimaniis considered the main catalyst for a possible war between the two nations. The attack was answered with strong words from the "violent revenge" of the top Iranian leader. "Data-reactid =" 19 "> Tensions between the United States and Iran have been escalating for some time, but the assassination of Maj. Gen. Qassem Soleimani is the main catalyst for a possible war between the two nations Iranian leaders answered with strong words of "violent revenge".

"Iran has to answer. This is possibly the most destabilizing event in the region since then [the U.S.] invaded Iraq, ”Academy Securities wrote in a note on Friday. "The Shiite mobilization forces will undermine the Iraqi government by targeting US forces, and the Iraqi government will not be able to control the chaos. It has the story of a weak government in Iraq – the recent protests before the US Embassy – Changed to "Down with America" ​​and a violation of sovereignty. "

The analysts agree that there will be conflicts between the United States and Iran, but how long they will last and how destabilizing they will be remains to be seen.

"Iranian actions will stop short of what we would call war," the Eurasia Group said in a note on Friday. “Overall, the chance of war is 40%. We divide the war into two sub-scenarios: a limited conflict (intense fighting for a week and at least 100 deaths) and a major conflict (regional conflict that would last for several months and involve ongoing attacks on the regional oil infrastructure). In the 40% war scenario, a limited conflict has a 70% chance and a major conflict has a 30% chance. "

How would escalation and ongoing conflict affect the markets?

<p class = "Canvas-Atom-Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Pantheon Macroeconomics Chief Economics Ian Shepherdson said:" The The wild card is whether the turmoil in the Middle East will trigger a persistent sell-off in stocks and push the confidence of companies and consumers to the point where worries about the labor market and inflation become secondary,We'd be surprised – the slump in S & amp; P-futures is just the initial response – but if Iran takes more drastic measures than we expect, it becomes a real risk. "" 24 "> Ian Shepherdson, Pantheon Macroeconomics' chief economics, said:" The wild card is whether the turmoil in the Middle East will trigger a continuing stock sell-off, and corporate and consumer confidence in the labor market and inflation concerns in the background move, We would be surprised – the slump in S&P futures is only the first reaction – but if Iran takes more drastic measures than we expect, it becomes a real risk. "

Pakistani demonstration of a U.S. airstrike in Iraq that killed Iranian revolutionary guard Qassem Soleimani in Peshawar, Pakistan on Friday, January 3, 2020 (AP Photo / Muhammad Sajjad)

Shepherdson noted that the Fed may have no choice but to loosen monetary policy if Iran takes drastic action.

“In the meantime, we expect defensive stocks to outperform with downward pressure on government bond yields and gains for safe haven currencies until Iran's response becomes clear. To repeat it again: Iran will respond, ”he added.

"The yen is our best foreign exchange pick for this year, but we believe we will see new lows in bond yields and more Fed easing than expected, rather than an entire year or geopolitical tensions," said Juckes. “From here, the main level should be EUR / JPY 120, the low of the upward channel the pair has been in since global bond yields were high in September. This is likely to be the case unless there is a further escalation. "

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<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Heidi Chung is a reporter for Yahoo Finance. Follow her on Twitter:@heidi_chung,"data-reactid =" 40 ">Heidi Chung is a reporter for Yahoo Finance. Follow her on Twitter: @heidi_chung,

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