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Stocks march back to record highs as Middle East tensions ease

Published 01/10/2020, 07:49 AM
© Reuters. FILE PHOTO: People walk through the lobby of the London Stock Exchange in London
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By Tommy Wilkes

LONDON (Reuters) - World stocks set new record highs on Friday and the prices of safe-haven assets such as gold pulled back as investors cheered an apparent de-escalation in U.S.-Iran tensions and looked instead toward prospects of improved global growth.

Markets have swiftly reversed the sharp falls seen at the start of the week after the United States killed Iran's most senior general, as investors have concluded that a full-scale military confrontation is unlikely.

The MSCI world equity index (MIWD00000PUS), which tracks shares in 49 countries, has quickly resumed its rally and added another 0.12% on Friday to hit a new record high. It is almost 1.5% above the lows seen on Monday.

(Graphic: MSCI World Equity Index click, https://fingfx.thomsonreuters.com/gfx/mkt/13/856/854/world%20stocks.png)

European shares also rose, although not quite hitting new records. The pan-European Euro Stoxx 50 (STOXX50E) gained 0.1% and the German DAX (GDAXI) 0.23%, while Britain's FTSE 100 (FTSE) was unchanged.

The three major share indexes on Wall Street touched new record highs on Thursday, and S&P 500 futures were 0.28% higher (ESc1), pointing to a stronger open ahead of all-important U.S. non-farm payrolls data due at 1330 GMT.

A Reuters poll of economists is forecasting the U.S. economy will have added 164,000 jobs in December, down from 254,000 in November, typically a strong month for hiring. Investors will also be focusing on underlying wage growth data for a gauge of underlying labour market strength.

Stock markets have got off to a decent start in 2019 despite U.S. President Donald Trump's decision to kill military commander Qassem Soleimani, the second most powerful figure in Iran, in a missile strike in Baghdad.

FULL CIRCLE

"In the space of a few days we appear to have swung full circle; with investors seemingly convinced that the problems in the Middle East appear to have settled down, at least for the time being," said Michael Hewson, chief markets analyst at CMC Markets.

"Investors now have the opportunity to focus on the signing of the new U.S.-China phase one trade deal next week, as well as the health of the U.S. economy today, and in particular the labour market which has continued to look resilient," he added.

Adding to the bullish mood, investors welcomed news that sales of Apple's iPhones in China in December jumped more than 18% on the year. They digested the report as a prelude to the upcoming visit by China's Vice Premier Liu He, head of the country's negotiation team in Sino-U.S. trade talks, to Washington next week to sign a trade deal.

MSCI's emerging market currency index (MIEM00000CUS), although little changed on Friday, hit 1-1/2-year highs on Thursday in what is likely to be its sixth straight week of gains. It has also benefited from three U.S. rate cuts last year.

Safe haven assets extended their drop.

Gold eased 0.1% to $1,550 per ounce from a seven-year high of $1,610.90 hit right after Iran's missile attack on Wednesday.

Against the Japanese yen, which investors often buy in times of uncertainty, the U.S. dollar strengthened 0.2% to a two-week high of 109.65 yen .

The dollar was slightly firmer (DXY). The euro dropped 0.1% to $1.1085 (EUR=), its lowest in about two weeks.

Oil prices, which briefly spiked at the start of the week on worries that tensions with Iran would disrupt global supplies, recovered some of their subsequent losses.

Brent crude (LCOc1) rose 0.3% to $65.57 a barrel, and was heading for its first decline in six weeks and its biggest since October, down around 4.5%.

U.S. crude oil (CLc1) rallied 0.22% to $59.69 a barrel but was also on track for its first weekly drop in six, falling 5.3% from last Friday's close.

Government bond yields, which rose on Thursday as investors' nerves about the situation in the Middle East eased, edged lower on Friday.

The benchmark 10-year German bond yield (DE10YT=RR) fell marginally to -0.221% but for the week remains up 6 basis points, in a strong signal of investors' willingness to pull back from safe-haven government debt for riskier assets.

The 10-year U.S. Treasury yield (US10YT=RR) slipped to 1.852% but it too remains up more than 6 basis points on the week.

© Reuters. FILE PHOTO: People walk through the lobby of the London Stock Exchange in London

"With risk appetite showing little sign of abating following another resurgent 24 hours in markets, the next potential hurdle to jump is the first payrolls Friday of the new decade," said Deutsche Bank (DE:DBKGn) macro strategists.

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