The main event of recent days, which will have a noticeable impact on world markets, of course, is D. Trump's unexpected and geopolitically risky decision to launch an airstrike at a military facility in Iraq, where Major General Q. Soleimani, the commander of the Islamic Revolutionary Guard unit, was killed and a highly respected and influential person in Iran.
This news has stirred markets, as it can cause not only sharp verbal picks between the United States and Iran, but also cause a military conflict between countries and, in general, cause a large-scale war in the Middle East.
Of course, in this kind of situation, the markets could not help but respond to this news with an increase in demand for defensive assets and, accordingly, a weakening risk appetite. On this wave, the benchmark yield of 10-year-old Treasuries declined from 1.921% to 1.768%, and it still remains noticeably lower than New Year's values although it is growing slightly in electronic trading on Monday. Of course, amid the escalation of the conflict and the extremely high probability of it developing from the Cold War into a hot war, quotes of other assets traditionally in demand in such situations — gold, the Japanese yen, and the Swiss franc — went up sharply.
Meanwhile, gold prices on the spot market, which already received support against the background of the thin market in the New Year's week, soared to April 2013 values, while the quotes of the Japanese yen paired with the US dollar rose to the local maximum of November last year, and the franc added to the values of August 2019.
Now, all the attention of market players will be focused on the dynamics of news on this topic, which will lead to significant market changes. We expect that the new Middle East crisis, which the United States sparked to solve its domestic political problems once again, will dominate other news. Thus, we believe that in this situation, demand for stocks of companies will fall, gold and other protective assets will increase in value over a limited period of time. At the same time, we do not expect that the dollar will noticeably fall to a basket of six major currencies, since a high degree of tension will contribute to the appreciation of the US currency due to increased interest from non-residents in US Treasury bonds. In our opinion, any deterioration in the situation will support the dollar as a safe-haven asset against other major currencies, except for protective ones.
Forecast of the day:
Gold quotes are trading at a noticeable increase in the wake of the escalation of the crisis in the Middle East. They have a high growth potential by 1600.00 after a possible correction to the level of 1557.00.
USD/JPY is under pressure amid rising demand for defensive assets. We believe that it will resume decline to 107.20 after breaking the level of 108.00 and fixing below it.
