• European bourses are softer, but not significantly so, in tentative trade ahead of US President Trumps update
• WTI and Brent spiked overnight, with spot gold surpassing the USD 1600/oz mark
• Iran has launched over a dozen ballistic missiles at two Iraqi air bases – Al-Asad and Erbil - which houses US and coalition troops; no US casualties at present
• 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!"
• 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
• Looking ahead, highlights include US ADP & Consumer Credit, ECB’s de Guindos & Fed’s Brainard, supply from US, EU Commission President von der Leyen & UK PM Johnson meeting and US President Trump’s statement on Iranian attacks

GEOPOLITICS – analysis piece available on Newsquawk headline feed

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) 

OPEC Secretary General Barkindo says he expects no oil supply disruptions from Iraq, and currently spare oil capacity is approx 3-3.5mln BPD. UAE Energy Minster Mazrouei, that the oil market is sufficiently supplied to weather the storm; with reference to the ongoing situation in the Middle-East. (Newswires)

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)

Iraqi Militia Leader states that the first Iranian response happened, and it is now time for the first Iraq response; noting this will not be lesser than the response from Iran was. (Newswires)

Saudi Arabia's state tanker operator has reportedly halted journeys through the Strait of Hormuz, according to WSJ. (WSJ)

Reports highlight that the KUNA News agency has been hacked, and there is no truth regarding the withdrawal of US forces., Aurora Intelligence. (Aurora) Follows on from reports that the Kuwait Defense Minister stated he has received, via the Commander of Camp Arifjan in Kuwait, an Official letter declaring the imminent withdrawal of all US forces in 3-days as according to Kuna

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 and is purely a technical issue. Boeing has an 8% weighting in the DJIA. Subsequently, Iranian Civil Aviation Chief says they will not return the black box of the crashed Ukrainian airliner to Boeing (BA), according to local media. (Newswires)

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 (-0.1%) 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 (-1.2%) 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 (-1.1%) 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”.

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) EU’s Chief Brexit Negotiator Barnier, before Christmas in a letter to UK Brexit Secretary Barclay, noted ‘issues of concern’ which include requirements for a fully independent watchdog to give EU citizens the ability to complain against the Government. (Telegraph)

EZ Consumer Confid. Final (Dec) -8.1 vs. Exp. -8.1 (Prev. -8.1)

-        Economic Sentiment (Dec) 101.5 vs. Exp. 101.4 (Prev. 101.3, Rev. 101.2)

EQUITIES

European bourses are softer this morning, as sentiment has switched from yesterday’s cautious optimism back into a firm risk-off frame of mind. Losses across indices are not too pronounced, recovering from overnight price action in futures, as we await the response from US President Trump; further analysis available in the Commodity section and the Newsquawk headline feed. In terms of sectors, this has also switched from yesterday with energy names now the only sector in positive territory; although, similarly to bourses, losses across the remaining sectors are relatively modest. As such, energy names are leading the Stoxx 600 while Co’s which are typically afflicted by higher prices are holding up relatively well roughly unchanged on the day e.g. easyJet (EZJ LN). Elsewhere, its comparatively quiet on the European stock stories front. Although, the situation is significantly different in the US where focus is on Boeing (BA), -1.9% in pre-market trade, after a 737-800 craft crashed in Iran shortly after take-off. This is reportedly due to technical issues and is not, at present, believed to be linked to the ongoing Middle-East tensions; interestingly, reports note that the Iranian Civil Aviation Chief will not be returning the black box from the craft to Boeing.

FX

USD - The Dollar’s broad recovery from post-Iran retaliatory strike lows is fairly representative of the overall retracement in currency and other financial markets amidst a relatively rapid turnaround in sentiment from aversion bordering on a scramble out of risk assets into safe-havens, albeit less pronounced. The DXY has reclaimed 97.000+ status and eclipsed yesterday’s high even though US Treasuries retain an underlying bid and the curve is marginally flatter awaiting the official US response after a full inspection of the bases hit in Iraq, and ahead of the next pre-NFP proxy for Friday in the form of ADP, assuming attention returns to fundamentals at some point.

EUR - The G10 laggard after yet another shallower rebound vs the Greenback and what looks like a fix-related run against the Pound that tripped stops in the cross through 0.8465, but stopped short of testing 0.8450 or last week’s low. The single currency now appears vulnerable to Eur/Usd sell orders said to be residing near/on Tuesday’s circa 1.1125 low that could then expose decent option expiry interest at 1.1120 and even between 1.1100-05 (in 1 bn and 1.2 bn respectively).

CHF/JPY/XAU - Very volatile trade given the aforementioned risk-off flows followed by a sharp/abrupt unwind of safe-haven premiums, as the Franc reverses from around 0.9665 back below 0.9700, Yen rotates more than a full big figure either side of 108.00 where there is a 1 bn expiry and Gold slides to circa Usd1573/oz compared to over Usd1610 at one stage.

NZD/GBP/AUD/CAD - All narrowly mixed vs the Buck, or holding up better amidst its revival, as the Kiwi keeps tabs on 0.6650, Aussie holds off fresh 0.6850 lows, with the aid of some welcome better news on the data front via building approvals, Sterling maintains 1.3100+ status and Loonie pares some of its losses around the 1.3000 handle. However, price action remains choppy/fluid across the board, and the Pound may be prone to more Brexit headlines in wake of UK PM Johnson’s date with new EC President von der Leyen to discuss the post-January 31 transition period and Britain’s relationship with the EU thereafter.

NOK/SEK - Some Norges Bank and Riksbank diversions for the Scandi Crowns to ponder, but not a lot new in comments from Governor Olsen or the December policy meeting minutes in truth. Hence, Eur/Nok and Eur/Sek are both largely tracking wider developments and the much improved risk tone, with the former lagging as crude prices come off the boil.

EM - Most regional currencies are benefiting from the considerably calmer mood, bar those with close commodity links that are underperforming/hampered by the retreat in oil, bullion etc.

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%)

FIXED INCOME

Debt futures were already in full retrench mode before the results of Germany’s auction, but the broad reversal in prices from lofty safe-haven pinnacles has gathered pace since, and for Bunds with some added technical impetus after yesterday’s Eurex low was breached. The 10 year benchmark has now been down to 171.85, and weighing on Gilts and US Treasuries in the relief that Iran’s strike back has not sparked a more aggressive return of fire from the US, for now at least. Ahead, ADP and the 10 year US offering, but the official word from President Trump will be pivotal above all else.

COMMODITIES

Another tumultuous day for markets, particularly the commodity complexes, due to the magnitude of news-flow and in the interest of time, a full briefing on recent events, including what’s next, responses so far and market reaction, is available on the Newsquawk feed. To briefly surmise the main points, overnight Iran launched missiles at two Iraqi bases (Al-Asad and Erbil), currently reports indicate that no US troops were killed but we await official confirmation of this. Markets took a firm risk-off tone, with WTI and Brent experiencing significant upside; high prints of, USD 65.65/ bbl and USD 71.75/bbl respectively. Subsequently, much of this move has pared back, with WTI now below the USD 63/bbl handle, given that comments have pointed towards a de-escalation in tensions between the US and Iran; notably, from POTUS himself. Looking ahead, focus is almost entirely on the announced press conference from US President Trump at some point today; the timing of this is currently unclear. Middle-East updates aside, we do have the weekly update from the EIA where headline crude is expected to print a draw of 3.572mln barrels which, if correct, would be a smaller draw than the 5.9mln barrels reported via API. Although, it is worth caveating that the release may draw less attention than normal given the Middle-East developments. Moving to metals, where spot gold overnight printed a fresh six-year high surpassing Monday’s just above the USD 1610/oz mark. However, similarly to crude, the yellow metals prices have drifted to reside within proximity to the USD 1580/oz figure.

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)