Monday January 6th

6-01-2020

Dow futures drop more than 150 points as Middle East tensions remain high

U.S. stock index futures fell for a second straight session on Monday as concerns over geopolitical tensions between Iran and the U.S. remained high following last week’s assassination of a top Iranian military leader. Around 7:15 a.m. ET, Dow Jones Industrial Average futures were down 159 points, indicating an open of 166 points at the open. S&P 500 and Nasdaq 100 futures also pointed to steep losses at the open. Those losses add to Friday’s sharp decline. The major averages had their worst trading day in a month on Friday after U.S. President Donald Trump called for a U.S. airstrike in Baghdad that killed top Iranian Gen. Qasem Soleimani. The news sparked a bid on oil prices amid worries the conflict could disrupt the world’s oil supply. Crude rallied more than 3% on Friday to its highest level since April. Oil added another 0.8% to that surge on Monday, trading around $63.60 per barrel. Trump said Sunday he could slap sanctions on Iraq after its parliament passed a resolution calling for the government to expel foreign troops from the country. “We have a very extraordinarily expensive airbase that’s there. It cost billions of dollars to build. Long before my time. We’re not leaving unless they pay us back for it,” Trump said. Meanwhile, the Iranian regime said Sunday it would not abide by the uranium-enrichment limits set by the 2015 nuclear deal. Investors have dumped equities — which were trading at all-time highs — in favor of traditional safe havens such as gold and Treasurys as U.S.-Iran tensions rose. On Monday, gold futures hit their highest level in more than six years. They traded 1.7% higher at $1,579 per ounce. The benchmark 10-year Treasury yield hovered below 1.8% after starting 2020 trading above 1.9%. Yields move inversely to prices. “Nevertheless, our outlook remains optimistic and bullish,” Ed Yardeni, president and chief investment strategist at Yardeni Research, said in a note. “Geopolitical crises tend to create buying opportunities in the stock market as long as they don’t trigger a recession.” “We don’t believe that Iran will disrupt oil supplies significantly now that the US has demonstrated a willingness to use lethal force to deter Iran’s mischief-making in the Middle East,” Yardeni added. Meanwhile, in terms of data, there will be service sector Purchasing Managers’ Index (PMI) due at 9:45 a.m. ET. The earnings calendar is also thin with only Cal-Maine Foods and Commercial Metals due before the bell. Asia markets mostly fell on Monday following heightened geopolitical tensions in the Middle East. Japanese shares returned for their first day of trade with the benchmark Nikkei 225 declining 1.91% to close at 23,204.86 while the Topix index fell 1.39% to 1,697.49. In South Korea, the Kospi index fell 0.98% to 2,155.07. Hong Kong’s Hang Seng index was down 1.11% in afternoon trade. Chinese mainland markets mostly bucked the downward trend by the close: The Shanghai composite eased morning gains to trade near flat at 3,083.41. The Shenzhen composite rose 0.44% to 1,768.68 and the Shenzhen component was up 0.39% to 10,698.27. Oil prices rose a further 2% on Monday, pushing Brent above $70 a barrel, as rhetoric from the United States, Iran and Iraq fanned tensions in the Middle East after a U.S. air strike which killed a top Iranian military commander. Brent crude futures soared to a high of $70.74 a barrel and was at $69.74 at 0940 GMT, up $1.14, or 1.66%, from Friday’s settlement. U.S. West Texas Intermediate crude was at $63.92 a barrel, up 87 cents, or 1.38%, after touching $64.72, the highest since April. Gold prices were near a seven-year high on Monday as escalating tensions between United Stated and Iran attracted safe haven demand, while palladium rose past a key $2,000 level to hit a new record peak. Spot gold rose 1.6% to $1,576.42 per ounce, putting it on course for its biggest one-day jump in more than four months. Earlier in the session it hit $1,579.72, its highest since April 2013. U.S. gold futures gained 1.7% to $1,578.70.