8th January 2020

·       Iran has launched over a dozen ballistic missiles at two Iraqi air bases, no US casualties have officially been reported thus far

·       Iranian Revolutionary Guard Corp claimed the attacks, Iran threatened "more crushing attacks" should the US retaliate

·       US President Trump tweeted "all is well…Assessment of casualties & damages taking place now. So far, so good!" - a statement will be made later today

·       Asian equity markets traded lower across the board, albeit off lows as Trump sounded cautiously optimistic

·       FX markets were choppy, Brent futures opened higher in excess of 4%, spot gold topped USD 1600/oz

·       Looking ahead, highlights include German Industrial Orders, EZ Consumer Confidence, US ADP & Consumer Credit, ECB’s de Guindos & Fed’s Brainard, supply from Germany and US, EU Commission President von der Leyen & UK PM Johnson meeting, Riksbank Minutes (December) and US President Trump’s statement on Iranian attacks

GEOPOLITICS

Iran has launched over a dozen ballistic missiles at two Iraqi air bases – Al-Asad and Erbil - which houses US and coalition troops. There were no reported US casualties thus far and the situation is being assessed, but sources noted of casualties among the Iraqis at the Al-Asad airbase following the attacks. CNN sources note that there have been no US casualties following the Iranian attack on Iraqi airbases but are awaiting official confirmation. The rockets fired near Erbil in Iraq have reportedly hit empty fields and there has been no attack on US consulate, according to a security official cited by NPR International Correspondent (Twitter/Newswires/CNN) US Pentagon noted that Iran launched over a dozen ballistic missiles against US military and coalition forces in Iraq, and it is clear that the missiles were launched from Iran - Pentagon will take all necessary measures to protect US personnel and allies. (Newswires) Iranian state TV claimed that 80 Americans were killed in the Iranian attack on US targets in Iraq, adds that US helicopters and military equipment were severely damaged in the attack; however, this has not been confirmed by the US. *N.B.1: There were also reports of a third strike at Camp Taji which was reportedly hit by around five rockets, albeit these reports were later dismissed. - *N.B. 2. There were unconfirmed reports via Al-Mayadeen that IRGC is claiming that "30 American soldiers" were wounded in missile attacks on U.S. bases in Iraq.

Iranian Revolutionary Guard Corp claimed the attacks and said it has fired "tens of missiles" at Al-Assad airbase in Iraq, via state media. (Newswires) In a statement, IRGC warned allied countries of the US "that if attacks are launched from bases in their countries on Iran, they will be a target of military retaliation.", via NYT's Fassihi. Iran also threatened "more crushing attacks", including further attacks to US bases should the US respond with fresh attacks, according to state TV cited by AFP. (Twitter) Senior official from Iranian Supreme leader's office said today's missile attacks against US targets were the "weakest" out of Iran's retaliation scenarios. IRGC Commander said Iran's attacks on US targets in Iraq was the first step and Tehran will not spare Americans, reported via State TV. (Newswires) Iranian Foreign Minister Zarif tweets "We do not seek escalation or war, but will defend ourselves against any aggression" (Twitter)

US President Trump tweeted "all is well", he acknowledged the missiles launched by Iran at two military bases in Iraq, "Assessment of casualties & damages taking place now. So far, so good!" - a statement will be made tomorrow morning. (Twitter) Note: no timings for the statement were mentioned. Iranian state TV said US President Trump's tweet aims to downplay the damages caused by the Iranian attacks on US targets in Iraq. (Newswires) Earlier, US President Trump said he would like to withdraw US troops from Iraq at some point; would only consider Iraq sanctions if the US is not treated with respect. (Newswires) Meanwhile, White House spokeswoman says the WH will not release any further written statement tonight about the Iranian missile attack, via Al-Jazeera. (Twitter) 

Reports noted that IRGC Commander Soleimani's body has been laid to rest following the Iranian strikes on Iraqi bases housing American personnel. (Twitter)

US troops at vulnerable Syrian bases are shoring up their defences and suspending operation meant to prevent IS fighters from regaining strength, according to WSJ citing US officials, adding that more forces are being deployed to the US Embassy in Baghdad. (WSJ)

A Ukrainian Boeing (BA) 737-800 jet has reportedly crashed in Iran due to technical issues, reported via ISNA. From the reports, it is unclear what the technical issue is. Boeing said they are aware media reports regarding the plane crash in Iran and more information is being gathered. All passengers on board have been killed, according to Iranian state TV. Note: There has been nothing to indicate that this has anything to do with the US-Iran tensions. Boeing has an 8% weighting in the DJIA.

ASIA-PAC

Asian equity markets traded lower across the board, albeit well off lows - as sentiment took a hit after Iranian forces carried out multiple attacks on Iraqi bases housing US personnel and allies, as part of the IRGC’s operation to avenge its commander’s assassination. Nikkei 225 (-1.6%) initially plumbed the depths and underperformed amid headwinds from a geopolitically bid JPY and with the index briefly dipping below the 23k level as almost all its stocks traded in the red. ASX 200 (-0.3%) fared better as downside was cushioned by the large-cap miners and energy names benefitting from price action in the respective complexes. Elsewhere, Hang Seng (-0.9%) and Shanghai Comp (-0.9%) conformed to the risk aversion, with losses in the mainland initially mitigated to an extent by the anticipated US-Sino Phase One trade deal signing next week. Finally, KOSPI (-0.8%) failed to glean support Samsung Electronics’ (+2.3%) prelim earnings – which flagged a smaller-than-forecast fall in quarterly operating profits, with some analysts noting it indicates that memory chip prices have bottomed out quicker than anticipated. APAC bourses climbed off lows after reports that US President Trump will not be addressing the nation – seen as a positive at the time as it indicates the US may not immediately retaliate. Furthermore, sentiment showed a slightly more pronounced turnaround after President Trump acknowledged the missile attack and noted that “all is well”.

"There are still many things that could go wrong,” warns China's Global Times on the 15th January Phase One deal signing. (Twitter)

PBoC set USD/CNY reference rate at 6.9450 vs. Exp. 6.9448 (Prev. 6.9690) (Newswires) PBoC skips open market operations for a net neutral daily position

UK/EU

UK PM Johnson is poised to tell European Commission President von der Leyen that the UK will not extend trade deal talks beyond Dec 31st, 2020 and talks will be based on a free-trade deal and not alignment, according to a statement. (Newswires)

BoE Governor Carney stated he is not leaving upcoming Governor Bailey without any tools in the arsenal, noting the Central Bank could still reduce rates to close to 0% from the current 0.75%, and could "supplement monetary policy with macroprudential tools". (FT)

FX FX markets have been choppy and have largely reversed the earlier Iran-induced moves on the back of US President Trump seemingly holding off on an instant retaliation to the latest attack. Upon the reports of the strikes - DXY gapped lower to test 96.80 to the downside from levels closer to 97.00 whilst USD/JPY gave up the 108.00 handle to a low of 107.65, as investors flocked to the safe-haven asset. The risk aversion also prompted downside in the Antipodeans which saw AUD/USD test 0.6850 to the downside whilst NZD/USD also experienced losses. The price action then changed course after reports noted that President Trump will not be addressing the nation regarding the Iranian strikes, which dwindled the prospects of an immediate retaliation and thus further escalation for now. USD/JPY moved back north of its 100 DMA at 108.20 and close to pre-strike levels whilst antipodeans rose to session highs. Elsewhere, EUR/USD and GBP/USD remained choppy with the former contained within tight overnight ranges, before coming under mild pressure in late APAC trade. Note: the pair sees EUR 1.0bln in options expiring at strike 1.1120 for today’s NY cut. Meanwhile, Cable posted cautious gains throughout the session ahead of UK PM Johnson’s meeting with European Commission President von der Leyen - in which the PM is expected to stress the importance of agreeing to a "confident and positive future relationship by the end of December 2020".

Australian Building Approvals (Nov) 11.8% vs. Exp. 2.0% (Prev. -8.1%) (Newswires) Australian Private House Approvals (Nov) 6.1% (Prev. -7.0%, Rev. -6.0%) 

COMMODITIES

Commodities were wholly driven by overnight geopolitical developments in the Middle East. WTI and Brent futures initially rose in excess of 4% after Iranian forces struck the Iraqi bases which held US troops. Brent front-month futures at the open immediately spoked higher from USD 68.50/bbl to USD 71.75/bbl on the notion that escalating tensions in the region would disrupt the global oil market. Prices then pared back almost all its overnight gains as the US President Trump did not immediately retaliate. Brent Mar’20 futures stabilised above USD 69/bbl having found a base at the round figure whilst WTI Feb’20 futures steadied around USD 63.50/bbl (vs. a high of USD 65.65/bbl). Elsewhere, spot gold was bolstered by the IRGC retaliatory attacks which drove the yellow metal briefly above USD 1600/oz for the first time since April 2013 to a high of USD 1610/oz. Prices then waned off highs and back below the psychological figure amid an improvement in risk sentiment. Precious metals have generally remained bid throughout the session - with spot palladium rising to fresh record highs of around USD 2060/oz. In terms of base metals, copper was relatively resilient to the sentiment emanating from geopolitical news amid tight supply concerns. Finally, Dalian iron ore futures rose almost 3% on hopes of firm restocking demand from steel mills heading into local holidays.

Iranian VLCC super tanker STREAM has now come back online on the AIS grid for the first time since July 2019. TankerTrackers interprets this as Iran signalling its intention of keeping the Strait of Hormuz open. (Twitter)

UAE Energy Minister stated that the oil market is well supplied now and that he is not forecasting a shortage of supply unless there is a catastrophic escalation in the region. The Energy Minister added that OPEC is not discussing any steps forward right now following the tensions in the Middle East (Newswires) Note: These are the first comments from an OPEC minister following the Iranian strikes on Iraqi bases. OPEC Secretary General Barkindo said OPEC+ compliance last year was at 146%, according to Energyintel Bakr. (Twitter) US Private Inventory Crude Stocks (3rd Jan) -5.9mln (exp. -3.6mln, prev. -7.8mln) (Newswires)

US 

* US T-NOTE FUTURES (H20) SETTLED 3 TICKS LOWER AT 129-05. The T-Note edged slightly lower in what was a lacklustre day regarding market activity; the curve was slightly steeper, 30-year yield +3bps and 2-year yield unchanged. The recent geopolitical induced risk-off move has taken a bit of a breather, with both Treasuries and oil prices coming off their recent highs. Some participants are likely cautious ahead of the supply slate this week, with new year’s corporate issuance ramping up alongside the Treasury auctions. One analyst notes that steepeners are likely being entered ahead of the 10- and 30-year auctions in the next few days, indicative of a concession effort ahead of Friday’s NFP report to “seamlessly underwrite the auctions.”