A string of equity indices, including the EuroStoxx 600, the S&P 500 and Nasdaq, have soldiered on to new record highs. This is quite an achievement for a week that began amid such high volatility, following the drone strike that killed Iranian general Qasem Soleimani on 3 January. Fearing this could spill over into further hostilities, investors’ first reaction was to scramble for safe havens such as the Swiss franc, yen and gold – the price of which at one point soared to USD 1611 per ounce (last seen in 2013) before retracing to USD 1550.

Additionally, potential disruption to traffic through the Strait of Hormuz, the gateway to the Persian Gulf, is seen as a risk to the world oil market and, in turn, the global economy. It is estimated that, in 2018, 21 million barrels per day passed through this narrow strait, representing 20% of the world’s daily consumption of oil and oil derivates. The flare-up in the Middle East has since returned to more manageable proportions after both the White House and Iran’s foreign ministry made it clear that they did not seek armed conflict. The news sent the price of crude lower as the China-US trade deal again became to the main consideration in the pricing of this asset.

A Chinese delegation is due to arrive in the US this Wednesday to sign the interim trade agreement, dubbed by Steven Mnuchin, Treasury Secretary, as a “historical transaction”. In his view, the hit to the US GDP from the Boeing debacle (estimated at 0.5%) will be offset by the imminent agreement, resulting in growth of approximately 2.5%. But the risk of under-shooting is high, especially because of sticking points such as the surrendering of intellectual property and commitments by China to open up its economy.

It is expected that the market uptrend will continue, even though lower-than-expected US jobs data for December (145,000 jobs added versus the expected 160,000) triggered a pullback. In 2019, the US economy added 2.1 million jobs compared with 2.7 million in 2018. On the wage front, pay packets grew by 2.9%, short of the 3.1% consensus forecast.
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