Global Markets: Easing US-Iran tensions push stocks higher


Global stocks extended a relief rally after the US and Iran appeared to step back from a deeper military conflict, and regional markets followed suit. Futures on the S&P 500 Index rose 0.3 per cent and the STOXX Europe 600 Index rose 0.4 per cent. The broader MSCI Asia Pacific Index gained 1.3 per cent. Asia Pacific markets too traded up on Thursday after US President Donald Trump’s comments on the Iran conflict eased investor worries about further escalation of geopolitical risks in the Middle East.
“Financial markets endured a complete risk-off/risk-on cycle as expectations of sustained tensions in the Middle East waned,” said Edward Bell, a commodity analyst at Emirates NBD. However, volatility is likely to persist in the short-term given that no party will be transparent as to whether there will be any further escalation of geopolitics in the Middle East, Bell added, but said that for now markets can resume looking to fundamentals for direction.
This comes a day after volatility and sell-off spiked on the back of Iran retaliation, but only to later turn calm on signs of deescalating tensions. The gyration on Wednesday was perhaps most evident in oil markets where benchmark futures moved nearly 10 per cent intraday from their highs to lows. Brent at one point was up to $71.75 a-barrel before pushing below $65.
“Even with the receding threat of US-Iran conflict, a broad host of supply and demand factors, couple with some (Middle East, North Africa) geopolitical risk premium, means that Brent oil prices will now be in the $65-75 range,” analysts at Eurasia Group wrote in a note.
Iranian Foreign Minister Javad Zarif added to Supreme Leader Ali Khamenei’s statement, saying that they “do not seek escalation or war”. Iraq stated that Iran had notified it of the strike in advance, indicating that Iran intended to minimise casualties.
“Trump’s preference for a withdrawal from Iraq that secures US commercial interests, and the two sides’ re-establishment of deterrence, point to a controlled confrontation,” said Firas Modad, Director of Middle East Country Risk at IHS Markit, while adding the recent developments point to a likely continuation of the current status quo of inconclusive confrontation between the two sides, falling short of an all-out war.
As sentiment improves, market participants unwound safe-haven bets with broad relief sell-off in the bond universe, said Huani Zhu, an economist at Mizuho Bank. “Whilst both the US and Iran had their ‘proportionate retaliation’ for now, we believe that it is in neither side’s interest to escalate further.” Gold prices gave up gains Thursday and spot gold was down 0.59 per cent at 1,546 points an ounce.
Dubai bourse’s main index DFM, which dropped as much as 1.6 per cent on Wednesday, clawed back its losses and ended up 1.4 per cent. Abu Dhabi’s ADX, which fell as much as 1.2 per cent a day before, closed up 1 per cent.
In Dubai, top gainers included market heavyweights Emaar Properties, which gained 1.2 per cent, while Emirates NBD shares jumped 1.6 per cent. The stocks, which largely indicate investor sentiment in the region, had briefly dropped yesterday on US-Iran war escalation.
Emerging markets reacted in a similar pattern and took back most of its early declines. In India, the benchmark S&P BSE Sensex, which settled down 51 points on Wednesday after falling twice as much earlier in the day, soared 800 points largely recovering from the losses seen earlier in the week.
The Pakistan Stock Exchange (PSX) on Thursday bounced back, as the KE 100-Index gained 838 points. Chinese mainland markets traded higher. The Shanghai composite added 0.91 per cent to 3,094 points, the Shenzhen composite was up 1.75 per cent to 1,800 and the Shenzhen component gained 1.79 per cent to 10,898.

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