Ambiguity Impacts Equities
European equity futures were trading lower as Iran listed potential retaliation strategies. Asia oil, bond, and gold flows, which are hedging the tail risks again, are providing the European opening lead-in for equities.
The move somewhat reverses out this morning's positive mood as most of the headlines were pointing to a softening in the Iran language.
It certainly feels like the market wants to stay somewhat defensive until it can find something tangible to counterbalance the Middle East risk.
Even if Secretary Shamkhani's comments are resurrecting Gulf War memories of Mohammed Saeed al-Sahhaf, also known as Baghdad Bob, who comments had more bark than bite, it's the fear of the unknown or even a fateful policy mistake that might keep safe havens in demand.
Overall the US/Iran situation adds to the ambiguity coming into this year with markets up on diminishing tail risk around US-China trade and Brexit, while several unknowns have yet to be factored, including data and US election risks.
Euro Versus USD And JPY
European December PMI revisions released yesterday were encouraging, with most countries in expansionary territory. EUR/USD traded well, but with the US-Iran tensions holding risk-sensitive crosses such as EUR/JPY at bay, it will likely thwart any EUR/USD topside ambitions today.