An Iranian rocket attack on two U.S. forces bases in Iraq has sent financial markets into turmoil with investors scurrying for safety.
“The weight of money is counting on a replay of the price-action on Monday. Essentially people are betting that this is not going to be our main focus three months from now,” said Sean Callow, a foreign exchange analysts at Westpac Sydney.
Mirroring a similar line of thoughts, James McGlew, executive director of corporate stockbroking, Argonaut, Perth said, “We are getting exaggerated moves but that’s of course volatility playing. Markets simply hate uncertainty. It’s an old adage but it definitely holds true in the current situation – markets can price risks but they can’t price uncertainty.
“I don’t think it’s going to be a bloodbath in the equities market but this volatility certainly takes the wind out of the sails.”
David Kotok, Cumberland Advisors’s Chief investment officer also sees the impact of the Iranian attack being contained and not leading to war.
“The market looks at…single events and doesn’t say it is a sequence intensifying to larger scale war. It is pricing in tension and risk but not the development of larger scale war,” said Kotok.
Jeffrey Halley, a senior market analyst at Asia Pacific, Oanda opined, “Expect equities to take a hit, especially in imported energy-dependent Asia. Airline stocks will be out of favor today because of oil, but that won’t be the whole story.
“The potential closure of the Straits of Hormuz – Iran has plenty of land-based anti-ship missiles – will severely disrupt oil supplies from the Middle East. We may also see next week’s signing of the interim U.S.-China trade agreement in Washington DC delayed.”
Kay Van-Petersen, a global macro strategist at Saxo Capital Markets, Singapore, sees the Iranian attack as having limited short term impact on financial markets.
“That’s the key risk, that they maybe kill Americans, and the U.S. strikes Iran and then they do something else that again is kind of direct. But I don’t think it takes us to a market rout. It makes it a little bit tougher to play the bounce, but it’s still going to be the same old move at the end of the day.
“I guess the biggest risk is actually just something else entering…I just think for proper risk-off, you’re going to need a lot more at the end of the day.”
Micahel Purves, CEO of Tallbacken Capital, New York said all bets are off if this attack escalates.
“If it stays more controlled (confined to the Middle East), the market will motor through this.
“If it escalates, it is a different game. What is really haunting me is – will investors who are pushing the FANG stocks use this as an excuse to sell and then equities fall into a 3-5 percent pullback?”
“Things have become increasingly overbought. If you’re an investor, don’t you want to take it easy here and back off a bit? (Further escalation could) give you a big, double-digit drop that just scares the living daylights out of folks”, said Christopher Stanton, Chief Investment officer at Sunrise Capital, San Diego.
Analysts and investors will be closely watching Trump’s next move.
“If it does look like we’ve got U.S. casualties, then I don’t think Trump is going to just stand back and take that…World War III has been thrown around. I don’t think we’re there yet. But it does look like Iraq II,” said Matt Simpson, market analyst at Gain Capital Singapore.