European update – Iran attack, oil, gold, bitcoin

Are Investors Reacting Enough to Events in Middle East?

It’s been a strange start to trading on Wednesday, with the Iranian retaliation against US bases in Iraq not triggering any significant flight to safety.

Source – Thomson Reuters Eikon

Of course, the knee-jerk reaction to the attacks was more substantial for obvious reasons. The lack of detail leaves people fearing the worst and once details start to emerge, traders are free to make more informed decisions. Still, I can’t help but feel there’s been an under-reaction to these attacks, despite safe havens remaining in favour.

Safe havens have pared the vast majority of the gains made in the aftermath of the attacks, potentially aided by the fact that no casualties have been reported. Perhaps traders view this as a more symbolic retaliation, rather than one intended to harm, which reduces the case for the US to respond with force.

Still, the reaction has been a little underwhelming. US President Donald Trump is due to give a statement today on the situation which will give us a much better idea of how much this move by Iran has escalated the conflict or whether cooler heads are going to prevail. I’m not particularly hopeful as there don’t appear to be many of those about.

For now, investors are hanging on in there. Stock markets in Europe are a little lower and US futures are currently flat which suggests no one is panicking just yet. Trump may change that if he seizes the opportunity to take a hard-line approach against Iran and dramatically escalate the conflict.

Oil pares gains as dust settles

Oil understandable spiked another 5% in the immediate aftermath of the attack but has reversed much of these gains as the dust has settled. It remains vulnerable to these sharp spikes as tensions between the US and Iran become increasingly heightened. This is the second time Brent has breached $70 and failed to hold above which suggests, in the event that no major escalation comes, we may have found a ceiling.

Brent Daily Chart

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Gold finds temporary ceiling around $1,600

Gold prices are a little higher but, as we’ve seen elsewhere, the bulk of the overnight gains have been lost. Gold broke through $1,600 for the first time since April 2013 but it didn’t last long and the yellow metal is now back around $1,580. Clearly, as with oil prices, gold is vulnerable to sharp spikes as geopolitical risk sends investors fleeing for safe havens. We appear to have found a ceiling around $1,600 for now but let’s face it, there’s a high probability of this being tested again as there’s little chance of de-escalation just yet.

Gold Daily Chart

Bitcoin tests $8,500 resistance

Bitcoin is one of the few instruments that hasn’t pared any of its gains of the last few days which once again suggest this is less a case of the crypto providing safe shelter and more of it acting completely independently of other assets. Perhaps the attacks have got crypto enthusiasts excited about the prospect of more easy money but bitcoin very much exists in its own little world and can’t yet properly be compared to other more established instruments.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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