• Safe havens give back gains on reduced geopolitical tensions
  • Oil erases risk premium, falling 9% from its Wednesday high
  • Friday’s US jobs report will be under trader spotlights

In less than 24 hours, investors have performed an about-turn from their initial defensive positioning to risk taking and markets rallying. On late Tuesday, Oil prices surged above $71, Gold topped $1,600, safe haven currencies rallied and US 10-year Treasury Bond yields fell to their lowest levels since early November. All these moves were a reaction to the Iranian missile attack on US military sites in Iraq. By the time European markets opened on Wednesday,  most of the panic was over and losses in stocks were reversed after President Trump addressed the nation, sending clear signs of de-escalation by downplaying the missile attack.

The US and Iran now seem to have both stepped back from direct confrontation. The nightmare scenario of a full-blown war looks to be over and investors can finally breathe a sigh of relief. Yet even if a conflict has been averted, the road ahead remains bumpy and investors should remain on standby for further possible retaliatory measures. However, fundamentals are quickly returning to the fore after being dominated by geopolitical factors this week.

Oil prices have now plunged 9% from their Wednesday highs, testing their lowest levels since December 16. Most of the geopolitical risk premium has been erased by yesterday’s move and we may still see further downward pressure if inventories build up in the weeks to come. While prices have returned close to their fair value, traders will need to closely monitor the situation in Iraq and whether any activity by proxy militias will lead to supply disruption. Otherwise, prices are likely to remain capped at $70 in the near term.

After the safe haven Yen and Swiss Franc retreated on Wednesday, most major currencies were trading in tight ranges early Thursday. Trader’s focus will shift to Friday’s US non-farm payrolls report for the month of December, after November’s surprisingly strong release showed a gain of 266,000 jobs. While it’s difficult to see a repeat of November’s positive surprise, a headline reading of more than 200,000 will give the Dollar a boost. More important than the headline figure will be wage growth and the average hourly earnings readings. Given that the US unemployment rate stands at 50-year lows, are we finally going to see upward pressure on salaries? That’s likely to be a key figure to watch, not just for December’s release, but for the year ahead.


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