The fear of geopolitical turmoil has spread across the world after the US airstrike in Baghdad on Friday (3rd January 2020), that led to the death of a top Iranian military commander, Mr Qasem Soleimani.
In a knee-jerk reaction to the airstrike, the oil prices jumped, and investors piled up safe haven assets such as gold, dumping equities.
Oil prices surged by more than 4 per cent on Friday over increased fears of disruption in global oil supplies.
The Dow Jones Industrial Average plunged by 0.81 per cent or 233.92 points, closing at 28,634.88 on Friday. Moreover, the S&P 500 Index and Nasdaq Composite Index ended the trading session lower with a fall of 0.71 per cent and 0.79 per cent, respectively.
How Global Equity Markets Responded to the US Airstrike?
Though the airstrike led to a surge in oil prices, it caused a fall in stock indexes across the globe.
In Europe, DAX Performance-Index fell by 1.25 per cent to 13,219.14, while Italy’s FTSE MIB lost 133.91 points on Friday.
In Asia, India’s BSE Sensex dropped by 0.39 per cent or 162.03 points, closing at 41,464.61.
Though the stock market indices fall, the price of Brent crude swelled by around 3 per cent in the wake of aggravating US-Iran tensions that could hit the international economy.
In addition, the oil firms listed on the London Stock Exchange rose, with oil industry companies – BP plc and Royal Dutch Shell closing 2.75 per cent and 1.86 per cent higher, respectively. According to the market experts, these oil and gas entities are expected to benefit from shooting oil prices.
The losses in the stock indices continued on Monday, with most of the Asia Pacific markets observing a fall amid heightened geopolitical tensions.
At 3:25 PM AEDT on 6th January 2020, Japan’s Nikkei 225 was trading 1.97 per cent down, while South Korea’s KOSPI index and Hong Kong’s Hang Seng Index were trading 1.07 per cent and 0.67 per cent down, respectively.
How ASX Reacted to the US-Iran Tensions?
In contrary to the global equities market, the Australian share market closed the trading session almost flat on Monday, with S&P/ASX 200 index ending at 6735.7 points. Though the market opened lower, falling to 6,676.9 by 10:15 AM AEDT, it rebounded from heavy losses via gains observed by the gold mining and energy companies.
In response to the US-Iran tensions, the spot gold price rose to USD 1,579.55 per ounce on Monday, recording its highest level since April 2013. ASX gold miners grabbed most of the top five S&P/ASX 200 gainers spots on Monday.
Take a look at major energy and gold players who traded in green zone:
There is no surprise that the gold miners are enjoying strong gains on ASX amid geopolitical tensions. The demand for safe haven assets, especially gold, tend to rise when such tensions grip the international markets.
Geopolitical Tensions Expected to Intensify Further
In response to the US airstrike that killed Iranian military commander, thousands of people held marches in Iraq and Iran over the weekend. Moreover, the Iranian government refused to abide by the terms of the nuclear deal that was signed in 2015 between seven countries, including Iran and the US. However, the US President withdrew from the deal in 2018.
Iraq’s parliament also voted in favour of expelling the US coalition troops from Iraq on Sunday. The US President has warned to impose a bill for billions of dollars if America would be forced to pull out its troops.
The US President is ready to respond harshly to Iran if it attacks the US assets or Americans in any manner. The President has threatened to strike 52 Iranian sites hardly if Americans are harmed.
Amidst the current scenario, market experts believe that the geopolitical turbulence between the two nations is expected to get worse in the months ahead. The US-Iran stand-off is a bad news for the global equities market, that has already suffered severely in 2019 owing to the US-China’s long-running trade war.
In the coming days, Investors are likely to keep a close eye on the political heat from the US-Iran tensions, devastating bushfires in Australia and the expected phase-one deal between the US and China.
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