European update – Iran, oil, gold, bitcoin

Market Bounces Back For Now

Stock markets are enjoying a bit of a bounce on Tuesday, a rebound that started during US trade on Monday and has flowed across Asia and Europe this morning.

Source – Thomson Reuters Eikon

As we’ve seen plenty of times before, investors have a remarkable ability to move past major geopolitical shocks rather quickly. Ultimately, every sell-off on the back of one of these events is just an opportunity to buy a dip. As long as it’s not followed with a rapid retaliation and escalation, which this has not.

That doesn’t mean, of course, that Iran won’t respond. That’s highly likely at this point. What isn’t clear is how and when it will respond. Oil is naturally quite vulnerable in these circumstances, given the importance of the Strait of Hormuz, but there’s no guarantee this will be the target.

The rhetoric from all sides has become no less provocative but investors are clearly quite happy to look through that. Let’s face it, Trump’s approach to various issues has been very aggressive – North Korea, China, Germany, France etc – but we’re yet to see a war. Of course, this situation is quite unique.

Oil pulls back as Iran patiently waits

Oil prices have settled a little as traders regain a little composure. Still, Brent is trading at a premium as a result of the assassination and that could continue for a short while. We saw after the Saudi attacks last year that traders have an incredible ability to get over these events rather quickly if nothing escalates, although it’s hard to imagine Iran doing nothing at this stage.

Still, we’ve already seen some profit taking and Brent is back below $70 and only around 3.5% above where it was pre-attack. It hardly seems appropriate given the significance of the event itself but then, the same could have been said when the Saudi’s lost half of their oil output over night. Traders are a fickle bunch.

Brent Daily Chart

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Gold pares safe haven gains

Gold is also pulling off its highs as we see some unwinding of the safe haven dash. As with other assets, gold remains a little way from pre-attack levels but still quite elevated. Should we go the rest of the week without a response then that may not still be the case but for now, traders are taking some profit but not abandoning the safe haven altogether.

Gold did pull back more earlier in the day but found some support from Friday’s peak, which came before it leapt higher on Monday’s open. This will continue to be key support in the near-term, with a break potentially pre-empting a full unwinding of the post-attack trade. Of course, this all entirely depends on Iran’s response.

Gold Daily Chart

Bitcoin rallies as sentiment improves

So we have equities higher, gold lower and oil paring post-attack gains. Clearly sentiment is improving which further calls into question bitcoin’s role as a safe haven in all of this. The rally from Friday was typically being attributed to a move to safety and yet, while that’s being unwound in all the traditional places, bitcoin is breaking higher. Perhaps the two weren’t linked after-all.

Still, safe haven nonsense aside, it is pushing $8,000 and a break of this could spur new life into bitcoin bulls, with $8,500 potentially representing the next test for the cryptocurrency. Above here $9,000 also looks quite interesting but ultimately, a break of $10,000 is needed to dramatically shift sentiment in the market.

Bitcoin Daily Chart

Source – Thomson Reuters Eikon

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