DESPITE entering the new decade, global risks remain the same as well due to the United States foreign policy in the Middle East.
When things were going relatively smoothly, news that Iran's top military chief Qassem Soleimani was been killed by a US airstrike in Baghdad, rattled markets.
The question now is whether US President Donald Trump’s decision will bring more stability to the region or cause more volatility.
So far, the rising tension has benefited gold and oil, whose prices have risen. Bond yields, in turn, have declined, the stock rally in the US had been halted, but we shouldn’t see it as a trend reversal.
In the foreign exchange market, safe havens and oil-sensitive currencies have jumped to their highest in months on Friday. The Swiss franc grew up to a four-month high of 1.0824 against the euro. The US dollar hit a one-week high versus the euro.
Besides that, the latest PMI data has been published. The ISM Manufacturing PMI in the US fell to 47.2 in December, the lowest since June 2009, from 48.1 in November and well below market expectations of 49.
The reading pointed to the fifth straight month of decline in manufacturing activity as new orders, production, employment, and new export orders shrank at a faster pace and price pressures increased.
Keeping in mind that the phase-one trade agreement between the U.S. and China should be signed on Jan 15, there is hope that several industry sectors will improve.
On the other hand, Business Confidence in the United States averaged 52.90 points from 1948 until 2019, reaching an all-time high of 77.50 points in July of 1950 and a record low of 29.40 points in May of 1980.
In the case of Germany, we saw a weak end to 2019 for manufacturing, but brighter prospects for the year ahead. The headline IHS Markit/BME Germany Manufacturing PMI registered 43.7 in December, down slightly from November's five-month high of 44.1.
The downturn persisted across all three main industrial groupings, with makers of investment goods noting the worst performance, followed by intermediate goods producers. The consumer goods category was alone in recording a slower rate of contraction.
Nevertheless, the forward-looking survey measures for new orders and output expectations both give off more positive signals, primarily thanks to the US-China 'phase one' trade deal and some clarity in the Brexit.
Finally, the J.P.Morgan Global Manufacturing PMI fell to 50.1 in December, from 50.3 in November. Growth of production and new orders were both marginal, as weak international trade flows stymied hopes of a stronger recovery from the mid-year downturn in the sector.
Still, national PMI data registered expansions in 14 nations. The top-three ranked countries were Greece, India and the US.
In this context, SPX decreased 0.16%, Nasdaq registered a smaller 0.02% fall, Dow Jones rose by 0.05%, VIX increased 10.83%, DAX lost 0.75%, whereas UK 100 Index dipped 0.13% and Hang Seng Index gained 2.11%.
Stocks that have increased the most in price in the US Stock Market in a week were CASSAVA SCIENCES INC (Sava) +139,45%, FUELCELL ENERGY INC (Fcel) +82,30%, ITERUM THERAPEUTICS PLC (Itrm) +80,25% and BIOXCEL THERAPEUTICS INC (Btai) +67,77%.
Obviously, one week is not going to solve rising tensions between the US and Iran, thus, it is time to look into gold and safe-haven currencies.
According to Reuters, the US. Embassy in Baghdad urged American citizens to leave Iraq following the strike at Baghdad airport that killed Soleimani. Dozens of American employees of foreign oil companies left the southern Iraqi city of Basra on Friday.
Close US ally Britain warned its nationals on Saturday to avoid all travel to Iraq, outside the autonomous Kurdistan region, and to avoid all but essential travel to Iran, the wire reported.
The problem is that Trump carried out a strike on Iranian commander without authorisation, which may have negative consequences on the political level in the proper US.
On the other hand, we should remember that the Trump administration does not have congressional approval to start a war with Iran.
Last but not least, it is time to focus more on fundamentals rather than technical analysis.
Next week's most important macro releases include housing starts and building permits on Thursday and the December employment report on Friday.
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