The DAX still defies the Iran crisis

By 07/01/2020News
Die Spannung am Finanzmarkt

07.01.2020 – Daily Report. The tension on the financial market is rising – the stock exchange in Frankfurt initially picked up again on Tuesday. The coming days are likely to be volatile, as they bring a lot of fuel for traders. For example a possible escalation in the matter of Iran. Plus the signing of the customs deal between the USA and China announced for mid-January.

Profits in Frankfurt

The German leading index was up 0.8 percent at midday, at 13,238 points. On the trading floor, hopes of a de-escalation between the USA and Iran now predominated again. Yesterday, the DAX had plummeted to 12,984 points, but then returned to the 50-day line. Chart analysis teaches that such moving averages develop a magical attraction. Gold dropped 0.1 percent from its seven-year high, and most recently cost $1,565. Oil crumbled by 0.3 percent: WTI changed hands for 63.07 dollars, and a barrel of Brent cost 68.65 dollars.

Asia in the black

The Tokyo Nikkei Index closed 1.6 per cent higher at 23,575 points, almost making up for all the losses it suffered on Monday. The Chinese CSI-300 rose 0.8 percent to 4,160 digits in the morning. Meanwhile, Chinese Vice Minister of Agriculture Han Jun raised eyebrows. He told Portal Caixin that the import quotas for wheat, corn and rice would not be raised. Well, didn’t Beijing want to increase the import of American agricultural products considerably? We may know more by January 15th. Any statement on the customs deal in the coming days has the potential to move prices.

New York optimistic again

The Dow Jones Industrial ended trading yesterday with a slight gain of 0.2 percent at 28,703 points – just below its daily high. The S&P 500 rose by 0.4 percent to 3,246 digits. The Nasdaq 100 even rose by 0.6 percent to 8,849 points. The major indices had set new records as recently as Friday. It remains to be noted that the House of Representatives has still not passed on the two impeachment articles to the Senate – meaning that the House has not impeached Trump de jure. The risks of deposing Trump are melting away.

Si vis pacem, para bellum

A very readable answer to the question of why the financial market has remained so calm so far in the face of a possible escalation between the USA and Iran was provided by Michael Every from Rabobank. He said that the market was wrong in assuming that the world’s central banks would be able to absorb an external shock such as Iranian attacks in the Persian Gulf. However, they are correct in their assessment that US President Donald Trump has turned the geopolitical game in his favour. The USA had signalled that it no longer had only two alternatives: Sanctions or a conventional war; Washington no longer needs to mobilize a hesitant international community.
For the USA had countered the conflict, which had been asymmetrically led by Iran up to now, with the elimination of the Iranian leadership plus possible attacks on important institutions. Tehran would either have to escalate or accept that America possesses the larger arsenals – which would mean an enormous loss of face for the mullahs in view of the recent riots with hundreds of demonstrators murdered in the country. Otherwise, the risks have been reduced with the elimination of General Quassem Suleimani. Every went on to say that the doctrine of deterrence is valid: “If you want peace, prepare for war – si vis pacem, para bellum. And the moral of the story for traders: “In short, if World War Three kicks off, go long USD as you head for the shelters; and if US muscle-flexing prevents World War Three here, it’s even more the time to remember why the USD is still the USD.”

The black swan circles

Needless to say, the world’s stock markets are likely to be shaken up if the USA does attack Iran – for example, to prevent the construction of an atomic bomb after the mullahs’ announcement of unchecked uranium enrichment. Especially if there is a large-scale offensive with the allies Great Britain, Israel, Saudi Arabia and the United Arab Emirates. The conflagration could spread to Lebanon and Syria. The price of oil would move sharply north, as the Persian Gulf supplies about a quarter of the world’s oil. Gold should also take off. The stock market indices would be a short investment. So you should keep direct market access open and regular market updates in mind.

What the day brings

The calendar of events on Tuesday brings some interesting events, you can find the overview as always here: Market Mover
First of all, the US trade balance for November is due to arrive at 2:30pm.
At 4:00pm the ISM Services Index for December follows and at the same time the US industrial order intake for November.

The Bernstein-Bank wishes successful trades!


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