Global markets take a hop due to de-escalation in global tensions

Investors took a huge sigh of relief on Friday due to positive developments across the globe on Friday. Markets have swiftly reversed the sharp falls seen at the start of the week. World stock market closed at a record peak on Friday and the prices of safe-haven assets such as gold pulled back as investors cheered an apparent de-escalation in global woes and improved global growth prospects.

The MSCI world equity index, which tracks shares in 49 countries, has quickly resumed its rally and added another 0.12% on Friday to hit a new record high. It is almost 1.5% above the lows seen on Monday.

European shares also rose, although not quite hitting new records. The pan-European Euro Stoxx 50 gained 0.1% and the German DAX 0.23%, while Britain’s FTSE 100 was unchanged.

The three major share indexes on Wall Street touched new record highs on Thursday, and S&P 500 futures were 0.28% higher.

“In the space of a few days we appear to have swung full circle; with investors seemingly convinced that the problems in the Middle East appear to have settled down, at least for the time being,” said Michael Hewson, chief markets analyst at CMC Markets.

“Investors now have the opportunity to focus on the signing of the new US-China phase one trade deal next week.

Adding to the bullish mood, investors welcomed news that sales of Apple’s iPhones in China in December jumped more than 18% on the year. They digested the report as a prelude to the upcoming visit by China’s Vice Premier Liu He, head of the country’s negotiation team in Sino-US trade talks, to Washington next week to sign a trade deal.

MSCI’s emerging market currency index, although little changed on Friday, hit 1-1/2-year highs on Thursday in what is likely to be its sixth straight week of gains. It has also benefited from three US rate cuts last year. Safe haven assets extended their drop.

Gold eased 0.1% to $1,550 per ounce from a seven-year high of $1,610.90 hit right after Iran’s missile attack on Wednesday.

Against the Japanese yen, which investors often buy in times of uncertainty, the US dollar strengthened 0.2% to a two-week high of 109.65 yen.

The dollar was slightly firmer. The euro dropped 0.1% to $1.1085, its lowest in about two weeks.

Oil prices, which briefly spiked at the start of the week on worries that tensions with Iran would disrupt global supplies, recovered some of their subsequent losses.

Brent crude rose 0.3% to $65.57 a barrel, and was heading for its first decline in six weeks and its biggest since October, down around 4.5%.

US crude oil rallied 0.22% to $59.69 a barrel but was also on track for its first weekly drop in six, falling 5.3% from last Friday’s close.

Government bond yields, which rose on Thursday as investors’ nerves about the situation in the Middle East eased, edged lower on Friday. The benchmark 10-year German bond yield fell marginally to -0.221% but for the week remains up 6 basis points, in a strong signal of investors’ willingness to pull back from safe-haven government debt for riskier assets.

The 10-year US Treasury yield slipped to 1.852% but it too remains up more than 6 basis points on the week.

“With risk appetite showing little sign of abating following another resurgent 24 hours in markets, the next potential hurdle to jump is the first payrolls Friday of the new decade,” said Deutsche Bank macro strategists.

Gold dipped on Friday and held on track for its first weekly decline in five as easing tensions rekindled risk appetite. Spot gold was down 0.3% at $1,547.90 per ounce at 1040 GMT, having fallen as much as 1% on Thursday to its lowest since Jan. 3 at $1,539.78. US gold futures were 0.3% lower at $1,549.20 per ounce. “There has been a spike in risk appetite among investors after tensions between the United States and Iran eased. That, along with a strong dollar, is weighing on gold,” said Quantitative Commodity Research consultant Peter Fertig. World stocks were on track for new highs, driven by the thaw in US-Iran tensions. Further boosting risk sentiment, the US House of Representatives on Thursday passed a resolution to stop US President Donald Trump from further military action against Iran.

The dollar was set to post its best week in two months, making gold more expensive for holders of other currencies. Gold, often considered a safe investment during political and economic turmoil, surged over $1,600 on Wednesday after Iran launched missile strikes on US forces in retaliation for the killing of its top commander in a drone attack. On the trade front, a ‘Phase 1’ trade deal between Washington and Beijing could be signed shortly after Jan. 15, Trump said on Thursday.

“Fundamentals for gold are turning a little bit less supportive, as no one knows about the US Federal Reserve’s next move and the trade optimism is kind of helping the global economy gather steam,” Fertig said. Central bank monetary strategy will be a key driver for gold going forward, he added. Lower interest rates reduce the opportunity cost of holding non-yielding bullion. Investors are now awaiting US non-farm payrolls due at 1330 GMT for further clues on the health of the world’s largest economy. “A break of $1,540 implies that a deeper correction to $1,520 could occur,” Jeffrey Halley, senior market analyst, OANDA said in a note. Indicative of sentiment, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 0.5% to 882.12 tonnes on Thursday.

Inayat-ur-Rahman/Agencies