Morning Commentary: Middle East Turmoil Rocks the Markets

Foreign Exchange - Morning Commentary
Middle East Turmoil Rocks the Markets
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Global markets are retreating today after news broke during the Asian session that the U.S. conducted a military strike in Iraq that killed a key Iranian General who was in charge of initiating counter-strikes against U.S. service personnel and diplomats. Markets are in risk-off mode and U.S. and global equity markets are reversing their sharp gains from yesterday.

G7 interest rates are all sharply lower and oil and gold prices (near a 6-year high) have spiked higher but are off their best levels of the session. The U.S. dollar and Japanese yen have advanced higher due to safe haven demand while almost all other major and emerging market currencies are weaker in varying degrees. The Canadian dollar is near unchanged supported by higher oil prices. 

While markets have reacted sharply this morning and are fearful of further escalation in tensions between the U.S. and Iran, markets have seen this movie of short term spikes in Middle East tensions. There have been previous episodes of increased tensions in the Middle East that have had short term impacts on the markets and then quickly subsided.

Oil prices spiked higher by near 4% before correcting lower as there are numerous countries awaiting higher prices in order to produce more oil including the U.S. Innovations and technological advances regarding fracking has made U.S. fracking a key source of oil.  Key U.S. economic data comes out later this morning but markets will be monitoring events very closely in the Middle East as to whether there is further escalation of tensions that could have further ripple effects on the markets.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The euro is weaker for the second day in a row as disappointing German data revealed both higher inflation and a higher job losses to close out 2019. Inflation accelerated from 1.2% in November to 1.5% in December and is the steepest increase since June. The jobs report showed that the number of people out of work was twice as high as expected with 8,000 job losses but the UR remaining at 5%. German factory employment had its worst year since the Great Recession.
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