The Path Of No Return?

Reports of rocket attacks on Ain Assad Air Base where US forces are stationed, and the subsequent confirmation by Iran taking credit for the missile strikes have sent risk markets reeling. So far, there have been no reports of US casualties, but I’m not sure if this will make one bit of difference as Iran is apparently preparing a second wave of response.
Stephen Innes
The Path Of No Return?

Views on the latest escalation headlines 

Until that point, the markets were struggling to form a consensus view as to how the US-Iran escalation will pan out. But now we’ve moved on from how Iran will respond to now anticipating the US 52-pronged response as the US military forces in the region are in a heightened state of alert while likely preparing for war. So, it’s not going to be pretty today.


Global Equities are being hit, and the need for defensive strategies is paramount as there is no denying the enormity of long-term geopolitical repercussions of the latest events as oil, bond, and gold defensive strategy flows are providing the lead-in for the local cash market opens.

Up until that point, oil markets were becoming a cloudy crystal ball when it came to be gauging middle east risk, but now with the latest escalations, the market is intensifying its responsiveness to supply risk as oil prices rocket higher with risk premia predictably in short supply.

Higher oil prices pose significant economic risks to Asia, given its heavy reliance on that region for its oil imports. The oil importers with chronic trade deficits like India, Indonesia, the Philippines will be particularly vulnerable to oil price shocks.

Big guns are steamrolling standing offers in the gold markets. When you think about it, we were already trading up at $1540 pre-US -Iran escalation on a combination of seasonality factors and Fed balance sheets expansion policies. So, until this morning’s headline, we had only baked in a $30-35 war premium, so with the Iran retaliation, all but guaranteeing a shock and awe response from the US, gold could be quickly move well into $1600 oz levels.

While geopolitical risk is clearly here to stay but is probably not fully priced in along the length of the gold forward curve, this suggests we could start to see the forward buys exert more influence on the spot prices as the deterioration in the US -Iran relationship intensifies.

This article was written by Stephen Innes, Asia Pacific Market Strategist at AxiTrader

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