Friday January 3rd

3-01-2020

Dow futures drop 280 points after US airstrike on Iran’s top military leader spikes oil

U.S. stock index futures were sharply lower Friday after the U.S. confirmed that an airstrike killed Iran’s top military commander, sending oil prices surging and hiking geopolitical concerns. At around 7:25 a.m. ET, Dow Jones Industrial Average futures were down 280 points. S&P 500 and Nasdaq 100 futures also pointed to sharp losses at the open. U.S. crude oil futures shot up around 4% to $63.56 per barrel, raising concerns about an energy shock on the global economy. Airline stocks fell broadly on the threat of higher oil prices. United, American, Delta and JetBlue all dropped more than 2% in the premarket. Investors largely fled risk assets such as stocks in favor of gold and Treasurys and other traditional safe havens. Gold futures jumped 1.4% to $1,548.70 per ounce. The benchmark 10-year Treasury yield, which moves inversely to the price, dropped to around 1.81%. The Cboe Volatility Index (VIX), widely considered to be the best fear gauge on Wall Street, traded about 3 points higher, or 23.7%, at 15.43. Energy stocks were the lone winner on Friday. The Energy Select Sector SPDR Fund (XLE) rose more than 1%. Devon Energy and Marathon Oil rose more than 3% each while Occidental Petroleum jumped traded more than 2% higher. The U.S. announced late Thursday that it had killed Iran’s top commander, Gen. Qasem Soleimani, in Baghdad in an airstrike. Soleimani had been a key figure in Iranian politics, and his death has raised concerns over a potential retaliation from the Iranian forces. Iranian Foreign Minister Mohammad Javad Zarif warned on Friday that Iran would retaliate against the U.S. for its actions. “It’s a game-changer,” Dryden Pence, chief investment officer at Pence Wealth Management, told CNBC’s “Squawk Box” on Friday. “We now have vast, broader array of weapons systems that the president has at his disposal. We’ve been able to weaponize economic sanctions now where we can go after individuals, … but now I think the ultimate sanction that the president is able to use is an airstrike.” Pence added, however, that any market volatility “will be short-lived.” Wall Street loaded up on safer assets on fears that an oil spike might spark a recession. That risk is also heightened by the fact that the global economy has been struggling amid a global manufacturing slowdown. The market moves come after U.S. equities rose to all-time highs on Thursday on the back of a strong performance in the tech sector. However, the optimism entering the new year seems to be fading amid political tensions, including North Korea and the impeachment of President Donald Trump. Major markets in Asia were subdued on Friday as investors weighed the impact of an escalation in Middle East tensions. The Hang Seng index in Hong Kong slipped about 0.2%. Mainland Chinese stocks were mixed on the day. The Shanghai composite was slightly lower at about 3,083.79 while the Shenzhen component added 0.17% to 10,656.41. The Shenzhen composite was 0.267% higher at about 1,760.85. Elsewhere, South Korea’s Kospi closed fractionally higher at 2,176.46. Markets in Japan were closed on Friday for a holiday. Oil prices surged 4% on Friday following confirmation by the Pentagon that Iran’s top commander was killed in a U.S. airstrike in Baghdad, raising concerns of a bigger conflict between the two countries that could disrupt energy production in the region. International benchmark Brent crude surged 4%, or $2.64, to $68.89 after trading as high as $69.50 at one point. U.S. West Texas Intermediate gained 3.7%, or $2.25, to trade at $63.68, its highest level since May. Earlier in the session WTI reached $64.09, its highest level since April. Gold rose more than 1% on Friday and was within a striking distance of the six-year high reached in September, as investors flocked to the safe-haven metal after a senior Iranian military official was killed in an air strike authorised by the United States. Spot gold was up 1.2% at $1,547.19 per ounce as of 1012 GMT, having touched it highest since early September, when bullion scaled a multi-year peak of $1,557. U.S. gold futures rose 1.4% to $1,549.70.