Thursday, January 9, 2020

Investors shift back to risky assets after Trump downplays fear of escalating tensions

Tags
  • Dollar
  • Gold
  • Euro
  • Stocks
  • Oil

Wall Street recovered on Wednesday, despite reports of Iran's attack on Iraqi airbases housing US troops on Tuesday. US President Donald Trump said in a televised speech on Wednesday that Iran appears to be ‘standing down', dampening fears of a further escalation of tensions between the two countries. 

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The dollar continued to gain, thanks to better-than-expected employment growth in the private sector. The ADP's employment report showed private sector payrolls rose by 202,000 instead of the 160,000 growth that economists forecasted. The services sector added 173,000 jobs while the goods producing sector added only 29,000 jobs, driven mainly by the construction sector.

In the UK, British Prime Minister Boris Johnson's Brexit Withdrawal Bill continues to easily move through the House of Commons and will likely be approved today during the third and final reading. But negotiations between the EU and UK following Britain’s exit will remain in question and sterling will likely be more sensitive to any developments from negotiations instead of the Brexit Withdrawal Bill itself.

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Meanwhile, demand for safe haven assets sharply fell, putting downward pressure on both gold and the yen. Gold declined after surging past 1610.00's level on Wednesday, as investors shifted back to risky assets. US Treasuries retreated as well, pushing yields back towards levels early last week. Benchmark 10-year yields surged 6 bps to 1.87%.

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In Asia, stocks look set to track gains in the US market on Thursday. The Nikkei and KOSPI both started Thursday's trading session above the previous day's closing price. The ASX200 started the day relatively flat but gained momentum later in the morning to rise 0.68% as of 7.03am (GMT +4).

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US futures were slightly higher on Thursday morning, as markets consider the impact of tensions between the US and Iran. While it appears the US is backing away from military action against Iran, tension between the two countries is likely to continue.

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Today's economic release includes the Eurozone’s unemployment rate for November at 2pm (GMT +4) and Initial Jobless Claims for the week ending January 4th at 5.30 pm (GMT +4).