Wednesday January 8th

8-01-2020

S&P 500 futures turn positive, making back overnight drop as Iran retaliation less than feared

U.S. stock index futures turned positive and indicated a higher U.S. stock open early Wednesday morning, making back a steep overnight decline after Iran fired rockets at an Iraqi airbase that hosts American troops. Shortly after 7 a.m. ET, S&P 500 futures were higher by 6 points, or 0.2%, and indicated a higher open for the stock benchmark. At their worst levels of overnight trading, S&P futures were down more than 1.6%. Nasdaq-100 futures were also higher. Dow Jones Industrial Average futures indicated a slightly lower open of about 10 points, as traders weighed a premarket loss in shares of Boeing. Overnight Dow futures were down more than 400 points. Investors were initially rattled late Tuesday after U.S. military officials told NBC News the Al Asad airbase, which is located in western Iraq, had come under attack, with multiple projectiles hitting it. Investors around the globe have been bracing themselves for a bigger conflict between Iran and the U.S. after last week’s assassination of Gen. Qasem Soleimani, a top-ranking Iranian military official. The Pentagon later confirmed the report, saying in a statement: “Iran launched more than a dozen ballistic missiles against U.S. military and coalition forces in Iraq. It is clear that these missiles were launched from Iran and targeted at least two Iraqi military bases hosting U.S. military and coalition personnel at Al-Assad and Irbil.” But so far there were no reports of casualties. The attacks did not target oil infrastructure, also boosting investor sentiment. Crude oil futures fell from their highest levels of overnight trading. WTI crude futures were up more than 4% at one point, but were last up just 0.4%. “After the panic 50 [point] decline last night in the S&P futures, I believe the markets response this morning is rational in the belief that these missile launches are likely the end of this spat rather than a further escalation,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. President Donald Trump responded to Tuesday night’s attack by Iran. “All is well! Missiles launched from Iran at two military bases located in Iraq,” Trump tweeted. “Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.” Trump’s response was tamer than feared by traders expecting a bigger conflict. “While tensions between the US and Iran are likely to continue, our base case does not assume significant and serious escalation as both sides do not have an interest to pursue a broader military conflict,” wrote Mark Haefele, global chief investment officer at UBS Wealth Management, to clients overnight. Investors also have history on their side as previous U.S.-Iran crises have seldom led to a prolonged market downturn. Data from Barclays shows the S&P 500 averages a gain of nearly 3% three months after a confrontation between the two countries. That average gain grows to 5.5% after six month. Boeing shares were down 2% in premarket trading. A Ukraine International Airlines Boeing 737 airliner burst into flames shortly after take-off from Tehran on Wednesday, killing all 176 people aboard in a crash that an initial report blamed on engine failure. Ukrainian officials later said, however, that the cause of the crash was yet to be determined. Defense stocks such as Kratos Defense & Security, Northrop Grumman, Lockheed Martin and Raytheon all rose more than 1%. On Tuesday, the Dow lost more than 100 points while the S&P 500 also closed lower. The Nasdaq Composite ended the day just below the flatline. “Most participants remained cautious ... as it’s still unclear how the standoff between the U.S. and Iran could affect financial markets,” said Ken Berman, founder of Gorilla Trades, about Tuesday’s session. “Volatility remained relatively low today, but investors remained nervous.” In terms of U.S. economic data, ADP employment figures are due out at 8:15 a.m. ET, and consumer credit numbers are expected at 3 p.m. Asia Pacific markets retraced some losses on Wednesday but remained broadly lower. Earlier, shares tumbled when reports said rockets were fired at an Iraqi airbase that hosts American troops. In Japan, the Nikkei 225 eased from earlier declines of more than 2% to trade down 1.57% at 23,204.76 while the Topix index was down 1.37% at 1,701.40. South Korea’s Kospi index was down 1.11% at 2,151.31. Chinese mainland markets also traded lower. The Shanghai composite index was down 1.22% at 3,066.89, the Shenzhen composite fell 1.24% to 1,769.58 and the Shenzhen component declined 1.13% to 10,706.87. Hong Kong’s Hang Seng index fell 0.83% to 28,087.92. Oil prices fell Wednesday morning, reversing an earlier spike, after Iran’s rocket attack on American forces in Iraq failed to destroy major energy infrastructure that could have disrupted global crude supply. International benchmark Brent crude fell 1% to $67.59, a marked reversal after at first climbing more than 4% immediately after news of the attack. The initial spike in response to news of the attack sent Brent up to a high of $71.75 per barrel — its highest since September. U.S. West Texas Intermediate crude dropped more than 1.5% in a similar move, sinking from an initial 4.5% spike. WTI crude hit a session high of $65.65 immediately after the attack, its highest level since April. Gold surged past the $1,600 level for the first time in nearly seven years earlier on Wednesday after Iran conducted retaliatory attacks against U.S. forces in Iraq, but the metal pared gains as investors awaited reaction from the White House. Spot gold rose 0.3% to $1,578.76 per ounce, having earlier surged as much as 2.4% to its highest since March 2013 at $1,610.90. U.S. gold futures rose 0.37% to $1,580.2 per ounce.