US stocks fell from record highs on Friday, after Donald Trump’s government imposed additional sanctions on Iran. The US announced that it would apply more sanctions on manufacturing, mining and textiles; most likely as retaliation to Iran's attack on Iraqi air bases that housed US troops earlier last week. Stock markets retreated as tensions between both countries escalate, although an all-out conflict seems unlikely.
Most major indices still managed to post weekly gains last week despite rising tensions in the Middle East. Equity markets will likely be more volatile this week thanks to the signing of the US-China phase one trade agreement, and as 26 companies in the S&P 500 index are set to report their earnings for the quarter.
The dollar slipped against most major currencies on Monday, as growth from US NonFarm payrolls in December was slower than predicted by economists, rising only 145,000 instead of the 160,000. The Dollar Index dropped as much as 0.16% to 97.376 in the first 10 minutes after the release of the report. In Canada, labour market data was better than expected, with employment numbers for December rising by 35,200 while the unemployment rate dipped to 5.6%.
Investors shifted to safe haven assets after the announcement of additional sanctions against Iran and both gold and the yen gained on Friday. Demand in the fixed income market rose as well, pushing US Treasuries higher on Friday. Benchmark 10-year yields fell 3bps to 1.82% as a result.
Stocks in Asia looks mixed on Monday morning as investors prepare for a volatile week. The KOSPI started the day 0.09% lower but recovered later in the morning, while the ASX200 and Straits Times Index fell later in the morning. The Tokyo Stock Exchange remains closed today for a bank holiday and will reopen tomorrow.
This week’s focus will be on the US-China phase one agreement, which is set to be signed on January 15th in the US. Over the week, quarterly earnings reports will be released from US major banks, starting with JPMorgan Chase, Citigroup and Wells Fargo on Tuesday. Inflation and consumer sentiment in the US and the European Central Bank's (ECB) December monetary policy meeting minutes will be released later this week.
Economic releases for the day ahead include industrial production, GDP and manufacturing production data for November in the UK releasing at 1.30pm (GMT +4).