With the markets enjoying a buoyant December, the turn of the new year brought a swift change of direction. With 2019 ending with the dragging factor of the US/Sino trade negotiations seemingly finding resolution, with phase one of the negotiations set to be signed on the 15th January with Chinese’s delegates due to fly in on the 13th there was much for the markets to feel happy and settled with and all-time highs were seen in some of the major indices.
However, on the first working day of the new year, everything came back to earth with a bump as a US airstrike into Iraq killed a top-level Iranian General and stirred up the underlying issues between the US and the middle east. Naturally, the escalation of tensions had the markets running for cover and safe-haven investments soared with Gold hitting a 6 year high at 1587 against the dollar and both the Japanese Yen and Swiss Franc appreciating.
All eyes will be on developments this week as Iran respond to the US actions and threats which Trump delivered over the weekend against 52 poignant Iranian targets, threating immeasurable damage from his vastly superior army, words which will only further anger the Iranian nation to respond. With it being likely Iran retaliation would be on US bases in the Middle East, naturally, stocks in the region have been sold. Over the weekend Iraq asked the US to leave their military bases in the country, again causing the President to take to Twitter to make threat.
Oil has surged back towards the $70 per barrel mark as the realities of further Iranian strikes on Saudi Fields as we saw last September become a very real possibility. Great volatility is expected in oil as this plays out in the coming weeks.
There have been questions asked as to the timing of the actions of the US President, as whilst impeachment looks increasingly unlikely, it is still hanging over him. Similarities have been drawn between former President Bill Clintons actions in the late ’90s whilst under impeachment, he took the country to war with Iraq. There is also the fact we are now in an election year and presidential populism always grows during conflicts.
The UK parliament comes back from their Christmas break this week as PM Johnson attempts to get his Brexit bill through the house and of course ascertain the UK’s position in the Middle Eastern conflict. Johnson issued a carefully worded statement over the weekend sighting that the UK wouldn’t mourn the death of Iranian General, but did seem to try and distance the UK from the actions of the US, likely fearful of getting dragged into a war when there are domestic issues to be dealt with. Over the weekend we saw Keir Starmer and Jess Philips announce they would be running for the Labour Leader position, 2 very credible candidates as it looks likely that Labour would try and pull away from the far-left stance taken under Jeremy Corbyn.
In the week ahead the focus will be on not just the US/Middle East but also North Korea where things continue to escalate. We also have a week of high-level data from the US with ISM Non- manufacturing data tomorrow. Friday brings the much-awaited US employment data following a staggering 266k new jobs created in November the forecasts are looking for 150k in December and a slight increase in Average Earnings from 0.2% to 0.3%, with the unemployment rate remaining steady at 3.5%