By Lorcan Roche Kelly
U.S. policy in the Middle East has become much more uncertain in the wake of the killing of Iranian General Qassem Soleimani. Yesterday, Iraq’s parliament voted to pursue the removal of U.S. troops from the country — something President Donald Trump reacted to with a threat of sanctions against the American ally. Iran said it will no longer comply with uranium enrichment limits under the 2015 nuclear deal, a move which seems to spell the death of that agreement.
In markets this morning there is a continuation of last Friday’s moves, with stocks falling across the world while havens such as gold are bid higher. The MSCI Asia Pacific Index dropped 1%, the Stoxx 600 Index was 1.1% lower by 5:50 a.m. Eastern Time and U.S. stock futures also pointed to losses at the open. Treasuries edged higher after Friday’s jump, with the 10-year yield at 1.783% while the dollar slipped.
One of the biggest moves in markets has been in the oil price, with Brent futures rising as much as 3.1% to $70.74 a barrel before paring some of those gains. The rally comes with something of a health warning from a Goldman Sachs Group Inc. note which points out the price gains will be short lived unless there is an actual supply disruption to global output. The oil rally hasn’t been good news for the world’s largest company, with Saudi Aramco’s share price adding to losses in trading today as fears over conflict in the region outweighed any short-term gain from higher crude prices.
Remember the trade war? While events in the Middle East have certainly taken over investor attention, there was more good news on progress towards getting a phase one deal signed, with China planning to send top negotiator Vice Premier Liu He to Washington on Jan. 15 to ink the agreement, according to people familiar with the matter. The South China Morning Post reported that the delegation changed their schedule after Trump unilaterally announced the signing date, and indicated he’d be willing to seal the deal with China’s President Xi Jinping being present.
Here to stay
Senior central bankers speaking at the American Economic Association’s annual meeting had a clear message. Low rates are going nowhere and could even fall further in the future due to demographic trends and sluggish productivity growth. New York Federal Reserve Bank President John Williams sees nothing to break GDP out of its trend or move the neutral level of interest rates higher in the next five to 10 years. One bit of possible good news from Denmark, the country with the longest negative-rate policy, is that the fear below zero rates are propping up zombie firms is unfounded.