Stocks wipe out new year gains; gold, oil soar on U.S.-Iran threat
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[January 06, 2020]
By Ritvik Carvalho
LONDON (Reuters) - Tensions in the Middle
East after the United States killed an Iranian general erased new year's
gains for world stocks on Monday as investors pushed safe-haven gold to
a seven-year high and oil jumped to its highest since September.
The United States detected a heightened state of alert by Iran's missile
forces, as President Donald Trump warned the U.S. would strike back,
"perhaps in a disproportionate manner", if Iran attacked any American
person or target.
Iraq's parliament on Sunday recommended all foreign troops be ordered
out of the country after the U.S. drone attack killed the Iranian
military commander and an Iraqi militia leader.
Spot gold <XAU=> gained 1.8% to $1,579.72 per ounce to reach its highest
since April 2013. Oil prices extended gains on fears any Middle East
conflict could disrupt global supplies. Brent crude futures jumped past
the $70 a barrel mark, while U.S. crude climbed 1.7% to $64.12.
European shares extended losses and were set for their worst day in a
week, with the pan-European STOXX 600 index down 1% by midday in London.
The European oil and gas stock index <.SXEP> rose about 0.86%, the only
gains, to reach its highest since July.
"Geopolitical events by their nature are unpredictable, but previous
periods of increased tensions suggest that the impact on wider markets
tends to be short-lived, with more lasting effects confined to local
markets," said Mark Haefele, chief investment officer at UBS Global
Wealth Management.
"In general, this supports holding a diversified portfolio."
NEW YEAR GAINS ERASED
MSCI's All-Country World Index, which tracks shares in 47 countries, was
down 0.34%, erasing all its new year's gains in its biggest two-day fall
since early December.
In Asia, Japan's Nikkei <.N225> slid almost 2%. E-Mini futures for the
S&P 500 fell 0.6%, indicating a lower open on Wall Street later.
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Gold bars are displayed at the headquarters of Mitsubishi Materials
Corporation in Tokyo January 9, 2008. REUTERS/Toru Hanai/File Photo
Chinese shares, which had opened in the red, reversed their losses,
as did Australian shares, which ended the day flat. Hong Kong's Hang
Seng index <.HSI> lost 0.8%.
Sovereign bonds benefited from the safety bid, with yields on
10-year Treasuries <US10YT=RR> down at 1.7725% after falling 10
basis points on Friday.
The yen remained the favoured safe haven among currencies thanks to
Japan's massive holdings of foreign assets. Investors assume
Japanese funds would repatriate their money during a true global
crisis, pushing the yen higher.
"You can't accuse the markets of over-reacting," said Societe
Generale strategist Kit Juckes. "FX moves are small, slightly lower
bond yields, slightly softer equities, but nothing is going mental."
On Monday, the dollar was last at 108.05 yen <JPY=>, after falling
to a three-month trough of 107.77 earlier in the session.
The dollar was steadier against other majors, with the euro up at
$1.1202 <EUR=>. Against a basket of currencies, the dollar was
holding at 96.562.
(Reporting by Ritvik Carvalho, additional reporting by Marc Jones in
London and Wayne Cole and Swati Pandey in Sydney; editing by Ed
Osmond, Larry King)
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