Stocks Tumble on Gulf Tensions

Global Markets

171

NEW YORK/LONDON/SHANGHAI

Global stocks tumbled and oil prices surged on Friday after a top Iranian commander was killed in a U.S. airstrike at Baghdad’s airport. European stocks tumbled and oil prices surged on Friday after a top Iranian commander was killed in a U.S. airstrike at Baghdad’s airport. Stock tumbled and oil prices surged on Friday after a top Iranian commander was killed in a U.S. airstrike at Baghdad’s airport.

The Stoxx 600 fell 0.9% and the DAX dropped 1.8%, reversing yesterday’s new year rally, while futures for Brent crude soared 4.1% to $68.96 and West Texas Intermediate crude futures also jumped 4.3%. The FTSE 100, home to oil majors BP and Shell, suffered smaller losses, falling 0.5%. U.S. stock futures also fell, with Dow Jones Industrial Average futures down 1.3% and S&P 500 futures slipping 1.7%.

General Qasem Soleimani, Iran’s most powerful military commander, was killed by a U.S. airstrike in Iraq on Thursday night, sending global markets into a spin. The Pentagon said Soleimani was “actively developing plans to attack American diplomats and service members in Iraq and throughout the region.”. The attack reignited geopolitical tensions with Iran’s Supreme Leader Ayatollah Ali Khamenei promising “severe revenge.”

As investors sought havens amid mounting risk, gold climbed 1.5% to $1550. Airline stocks were among the worst affected as oil prices rose sharply. Air France plunged 7.4%, Deutsche Lufthansa dropped 7.7% and easyJet fell 3.3%. Conversely, oil majors posted solid gains with BP rising 1.8% and Royal Dutch Shell gaining 1.4%.

Asian shares extended their New Year’s rally on Friday after Wall Street struck another record high on fresh Chinese stimulus while oil spiked after U.S. air strikes in Iraq heightened geopolitical tensions. MSCI’s broadest index of Asia-Pacific shares outside  Japan .MIAPJ0000PUS touched its highest point since June 15, 2018 in early trade, but later pared gains. It was last up 0.31%.

The index had finished at its highest close in more than 18 months on Thursday, lifted by a New Year’s Day announcement from China’s central bank that it would cut the amount of cash that banks must hold as reserves, releasing release around 800 billion yuan ($114.87 billion).

Against the backdrop of a thaw in trade relations between the United States and China, global markets have seen renewed appetite for risk assets.

“You have from both a policy and trade perspective a favourable framework for … risk assets for the weeks to come,” said Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong. “The issue in our view, and that is the central scenario, is beyond these few weeks – where could we see a further correction?” he said, noting that the United States is unlikely to enjoy further fiscal stimulus before the presidential election in November.

But in an a fresh blow to stability in the Middle East, Iranian Major-General Qassem Soleimani, head of the elite Quds Force, and Iraqi militia commander Abu Mahdi al-Muhandis were killed early on Friday in an air strike on their convoy at Baghdad airport, an Iraqi militia spokesman told Reuters. U.S. officials told Reuters that strikes had been carried out against two targets linked to Iran in Baghdad.

The news sent oil prices surging, with global benchmark Brent crude LCOc1 shooting 1.74% higher to $67.40 per barrel and U.S. West Texas Intermediate crude CLc1 jumping 1.60% to $62.16 per barrel. News of the strikes came after U.S. Defense Secretary Mark Esper said on Thursday there were indications Iran or forces it backs may be planning additional attacks after Iranian-backed demonstrated hurled rocks at the U.S. embassy in Baghdad following American strikes on Sunday against bases of the Tehran-backed Kataib Hezbollah group.

Esper warned that the “game has changed” and it was possible the United States might have to take preemptive action to protect American lives. Equity markets remained unfazed as investors took further support from data on Thursday showing factory activity in China continued to grow at a solid pace in December, and that business confidence improved.

South Korean factory activity also improved in December, returning to growth after seven straight months of contraction. “The South Korea data, a bellwether for global trade and technology, shines a massive ray optimism confirming that the rebound in the world economy is taking place, which is being viewed in an extremely positive light by global investors,” Stephen Innes, strategist at AxiTrader, said in a note.

South Korean shares .KS11 added 0.28% on Friday. China’s CSI300 index, one of the world’s best-performing indexes last year, was 0.15% higher. Australian shares .AXJO added 0.97%. Markets in Japan remain closed for a national holiday.

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