It has not taken Iran long to respond to the US killing of General Qassem Soleimani. On the day of his funeral, Iran has fired rockets into US controlled bases in Iraq. With President Trump seeming confident that the attack has done little lasting damage or loss of life (according to western media), the question is whether this is the end of the proportionate response the market has been fearing, or just the beginning. If Iran, and more importantly, President Trump, sees this as an eye for an eye, then markets can begin to look beyond this conflict. There are signs of this view being taken early today. What is more likely is that this reaction from Iran is a public, face-saving response, but behind the scenes they will presumably continue to ramp up its proxy wars with the US. If this is correct, then a line could be drawn under this issue for the time being. From a markets perspective, there has been a spike back towards safety and out of risk, but the move seems to be fading. Treasury yields dropped, gold has spiked above $1600, oil rallied sharply and the yen strengthened. However, there are already signs of these moves unwinding. The US 10 year yield is already +9 basis points off its overnight low, whilst the yen has unwound overnight gains, gold is back -$20 off its highs and even US equity futures are recovering. Given that gold is now more overbought (on its technical momentum indicator, the RSI) than at any time for 20 years, this could be a key turning point for the contrarians?
Wall Street closed back lower -0.3% on the S&P 500 at 3237, with US futures -0.2% lower today. Asian markets got the full front of the overnight selling pressure with the Nikkei -1.6% lower and Shanghai Composite -1.2% lower. European markets are set for early declines but are again well off their overnight lows on futures, with FTSE futures -0.3% and DAX futures -0.6%. In forex, EUR and JPY are around flat on the day whilst sterling is performing well, along with NZD and AUD outperforming. In commodities, there was a big spike higher on gold overnight, but the market is already -$20 off its intraday high (still +1% on the session though). Oil is also around +1% higher (having been +4.7% higher overnight).
There are a number of December Eurozone indicators to keep an eye on with the economic calendar this morning, all coming at 1000GMT. The Eurozone Economic Sentiment is expected to see a mild tick higher to 101.4 (from 101.3 in November) which would be a second consecutive month of improvement (something not seen