Escalation

Qassem Soleimani, one of Iran’s most powerful generals who led proxy militias that extended the country’s power across the Middle East, was killed in an airstike in Iraq on orders from President Donald Trump. Iran’s supreme leader Ayatollah Ali Khamenei vowed revenge. Trump’s allies are hailing the assassination as one of his boldest foreign policy strokes, while his critics say it is likely to be his most reckless. The killing has inflamed tensions between the U.S. and Iran, and across the Middle East, heightening fears of a wider conflict which could pull in other countries.

Rush to safety

Market reaction to news of events in Iraq was a swift move to safety. Oil futures are surging, with Brent crude for March settlement jumping more than 4% to $69 a barrel. Gold rallied to the highest level in almost four months, trading above $1,550 an ounce this morning. Global stock markets are falling, with almost every industry sector in Europe’s Stoxx 600 Index lower, while S&P 500 futures are down more than 1.5%. The 10-year Treasury yield dropped to 1.821% as strategists see investors moving to cut risk exposure across all asset classes.

Fed minutes

Away from the rapidly developing situation in the Middle East, today’s Federal Reserve meeting minutes may provide some solace to markets on the bank’s plan to maintain control over the repo market. One of the things that will be watched for is any plan to introduce a standing repo facility, a tool that would allow banks to convert eligible assets into reserves on demand. There will also be interest in any hints as to what it might take to change policymakers’ view that interest rates are on hold for all of 2020. The minutes are published at 2:00 p.m. Eastern Time.

Manufacturing spotlight

Yesterday’s global manufacturing PMIs produced a mixed picture of the health of factory output from Asia to Europe. Today’s ISM factory survey for the U.S. will give the first indication of whether optimism for a trade deal had a positive impact in December. Economists surveyed by Bloomberg expect an uplift to 49 from 48.1 in November, with Bloomberg Economics seeing a rise above 50, indicating expansion.

Coming up…

The ISM data is at 10:00 a.m., with construction spending for November also published at that time. While the oil market’s attention may be elsewhere this morning, both crude oil inventories data at 11:00 a.m. and the Baker Hughes rig count at 1:00 p.m. may be worth keeping an eye on. There is a raft of monetary policy speakers due, with Richmond Fed President Thomas Barkin, Fed Governor Lael Brainard, San Francisco Fed President Mary Daly, Chicago Fed President Charles Evans and Dallas Fed President Robert Kaplan all at various events today. Automakers are scheduled to report December sales throughout the day.