Trade of the Day: Stocks crumble, US Treasuries advance and Wall Street futures ease; gold and oil surge
Quote of the Day: “The direct economic impact of the protests that began in opposition to the citizenship amendment bill is likely to be small,” said Shilan Shah, economist at Capital Economics who argued that the nation-wide protests in India could be a mixed blessing for the economy. “However, the protests have increased the chances of a larger fiscal stimulus in next month’s union budget, which would be positive for growth in the near term. On the downside, the controversy surrounding the citizenship bill – as well as the pursuit of such populist policies in the first place – appears to be causing attention on economic policymaking to slip.”
Stock of the day: Ganfeng Lithium rose as much as 13.5% after media reported the first deliveries of made-in-China Tesla Inc. vehicles to customers would happen on Tuesday. The shares of other suppliers to Tesla also rose.
Number of the Day: $70 The price of Brent crude per barrel, a level hit for the first time in three months.
Tip of the Day: “We here update our target framework for the S&P 500, which suggests upside in 2020 of 2% (our 2020 year-end target is 3300) as we likely saw some of 2020’s gains pulled into 2019, and would expect more realistic returns in 2020. But our long-term bullish stance on US stocks is still supported by valuation. With a dividend yield of 2%, implied annualized total returns of 7% for US stocks are still compelling relative to most fixed income offerings,” said BofA Securities strategists in a note published on Monday.
Financial markets tumbled after Tehran threatened to avenge the killing of an Iranian general by the US military, boosting the appeal of safe havens and a surge in crude prices amid tensions in the oil-rich region. “If we do not take a unanimous stance against America’s mistakes, a great danger will threaten our region,” said Iranian President Hassan Rouhani. He said later in a phone call with the Ashraf Ghani, President of Afghanistan: “The Americans have kept their aggressive nature and have never been committed to their political, legal and moral obligations and have violated the rights of nations.”.This was followed by an even more threatening message from US President Donald Trump that the US is “targeting” 52 Iranian sites and will strike “very fast and very hard” if Tehran attacks Americans or US assets.
“The Eurozone and the UK have called for the US to de-escalate tensions in the Middle East. Iran has demanded that the United Nations condemn the US and reserved the right to defend itself. The last thing markets want is a move from a tit-for-tat tariff war to saber-rattling in the Gulf,” said DBS strategists in a report.
MSCI’s Asia Pacific ex-Japan index fell 1%, Japan’s Nikkei 225 index retreated 1.9% and the Hang Seng fell 0.79% with healthcare, industrials and property providing the maximum drag on the benchmark. The Stoxx Europe 600 index was down 0.6% and S&P Futures dropped 0.4% indicating that Wall Street was set for a weak start. Gold prices struck a seven year high rising to $1,580 per ouce, its highest level since April 2013. But analysts expect it to lose momentum once hostilities cease.
“Gold initially traded higher throughout the Christmas holidays. The escalation of tensions in the Middle East has since sent Gold to a seven year high, as markets seek refuge in a traditional safe haven in times of uncertainty. We expect Gold to redeem some of its recent gains at the first signs of de-escalation,” said Olivier Konzeoue, FX Sales Trader at Saxo Markets.
Hostilities are building against the presence of US military personnel in the Gulf region with the Iran-backed Lebanese group Hezbollah warning that the US military in the Middle East would pay the price for the killing of Iranian Major General Qassem Soleimani, warning that US soldiers and officers would return home in coffins. Meanwhile, Iraq’s parliament called on Sunday for US and other foreign military forces to leave the region. The Iraqi parliament passed a resolution calling on the government to work to end all foreign troop presence.
Still, sentiment in China’s banking sector was lifted by signs that regulators were keen on supporting troubled lenders and small borrowers who have been pressured by an economic deceleration and tight liquidity conditions. China’s banking and insurance regulator relaxed guidelines for foreign lenders to enter the Chinese market abolishing the total asset requirements for foreign banks setting up businesses in China and easing limitations on shareholders of joint venture lenders. This is seen as encouraging support towards its troubled banks and small businesses as the country seeks to rein in its debt mountain in a slowing economy.