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Oil slips and stock markets rise as investors reassess Iran fears

Oil slips and stock markets rise as investors reassess Iran fears

A measure of risk sentiment returns following two days of losses

Global markets rebounded while oil gave back some of its sharp gains on Tuesday, as investors reassessed the likelihood of direct confrontation between the US and Tehran.

Asian stocks rose as a measure of risk sentiment returned to the market following two days of losses. Japan’s Nikkei rose 1.6 per cent, largely recovering the previous session’s sharp fall, while Australia’s ASX also outperformed with a gain of 1.5 per cent.

Europe’s broad Stoxx 600 index climbed 0.4 per cent, with markets in Germany, France and the UK all advancing. S&P 500 futures rose 0.1 per cent.

Brent crude fell 1 per cent to trade at $68 a barrel. It has gained nearly 3.5 per cent this year on fears over Middle East supply disruptions.

“The market continues to await any signs or hints on how Iran may retaliate to last week’s US air strike,” said Warren Patterson, head of commodities strategy at ING.

Mr Patterson noted that the US State Department has warned Saudi oil facilities are at risk of attack, while there are also worries over Iraqi supply after President Trump waded into a confrontation with Baghdad over the future of US troops in the country.

In a chaotic afternoon in Washington, the US denied it is pulling its forces out of the country after a leaked letter emerged indicating preparations for a withdrawal. “There’s been no decision whatsoever to leave Iraq,” said Mark Esper, the US defence secretary.

Strategists at Wall Street bank Goldman Sachs said they remain “mildly pro-risk” in asset allocation looking ahead to 2020, following a year which was “a bull market in everything”.

“The recent developments in the Middle East as well as the US elections are likely to keep the markets’ focus on geopolitical risks, which might weigh further on investor sentiment.”

Haven assets were steady, with gold flat but still trading around 7-year highs on the increased geopolitical tensions. Sovereign bond yields hovered in a tight range as a rally in government bonds ran out of steam.

“With a near-term hard Brexit scenario significantly reduced and the signing of a ‘Phase 1’ trade deal between the US and China looking likely on 15 January, we now see how the US-Iran relationship unfolds as the largest macro driver of rates in coming weeks,” said RBC strategist Peter Schaffrik.

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