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Stocks Pare Losses After Iranian Strike Roiled Markets -- Update

08/01/2020 3:04pm

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By Anna Hirtenstein and Joanne Chiu 

Tehran's military response to the U.S.'s killing of a key Iranian general rattled markets, but the moves in stocks, bonds, and commodities quickly moderated as investors reassessed the chances of a broader conflict.

U.S. stocks were mixed in early trading, with the S&P 500 rising 0.1% in the first minutes of trading in New York. The Dow Jones Industrial Average declined 18 points, while the Nasdaq Composite Index inching higher less than 0.1%. Earlier, futures tied to the S&P had fallen as much as 1.7%.

Late Tuesday, the Pentagon said Iran fired missiles at bases in Iraq where U.S. troops are stationed. Iran's Islamic Revolutionary Guard Corps said the attacks were in retaliation for the killing last week of Maj. Gen. Qassem Soleimani.

Iran's foreign minister said the country had taken "proportionate measures in self-defense" and didn't seek escalation or war.

On Twitter, President Trump said "All is well!" adding, "Assessment of casualties & damages taking place now. So far, so good!"

An administration official said there appeared to be no U.S. casualties at either attack site, but that the assessment was in its early stages.

European stocks were flat, with the Stoxx Europe 600 and the U.K.'s FTSE 100 both wavering less than 0.1%.

Japan's Nikkei 225 closed 1.6% down after trading as much as 2.6% lower. Indexes in Hong Kong and South Korea both narrowed losses to around 1%.

"Geopolitics become noise to markets until it becomes more serious," said Kit Juckes, a macro strategist at Société Générale. "This view is borne of experience -- history says that we avoid major escalations."

Brent crude, the global oil benchmark, added 0.3% to $68.48 a barrel, after spiking to as high as $71.75.

Suhail al-Mazroui, the energy minister of the United Arab Emirates, said oil producers would respond to any supply shortages, but that disruptions weren't likely and the option wasn't being currently discussed by the Organization of the Petroleum Exporting Countries.

"We are not forecasting any shortage of supply unless there is a catastrophic escalation, which we don't see," Mr. al-Mazroui said.

Rallies in government bonds and gold, two assets that tend to gain in times of stress, lost steam. The yield on the benchmark 10-year Treasury note declined to as low as 1.708% before recovering to trade at 1.8017%, from 1.825% Tuesday. Yields fall as prices rise.

"A flood to safe havens have really been reversed reasonably quickly," said Philip Shaw, chief economist at Investec. "The balance of market opinion is that this could be a one off and the situation may well settle down."

Gold stood 0.3% higher at $1,579.50 an ounce, after briefly topping $1,600 for the first time since April 2013.

Stefan Hofer, chief investment strategist at LGT Bank, said higher oil prices could slow global growth.

"Rising oil prices is a tax on consumption," he said, adding that investors should accumulate gold, partly as a hedge against geopolitical events.

Despite the reversal in sentiment, defense companies in the U.S. climbed in premarket trading. Lockheed Martin added 1.6%, General Dynamics rose 1% and Northrop Grumman advanced 1.3%.

Walgreens Boots Alliance Inc. dropped 4.2% premarket after reporting its quarterly results. The pharmacy chain's earnings per share fell 19.8% and its chief executive said it was a "soft first quarter."

Airline stocks declined in a predictable reaction to a rise in oil prices. Air France declined 1.8% and Lufthansa slipped 0.4%. International Consolidated Airlines Group, which owns British Airways, slid 1%.

Boeing slipped 1.9% in premarket trading after one of its planes operated by Ukrainian International Airlines crashed in Tehran on Wednesday shortly after takeoff, killing all 176 passengers and crew onboard.

Iran's official state news agency said the crash was due to an engine fire caused by a technical fault. It didn't explain how that conclusion was reached.

Shares in Finablr PLC declined 16% Wednesday after one of its key businesses, foreign-currency-exchange chain Travelex, said it was the victim of a ransomware attack that has hobbled its computer networks. Two key shareholders, Saeed Al Qebaisi and Khaleefa Al Muhairi, said they were selling $72 million of Finablr shares between them.

Anglo American dropped as much as 2.6% after it said that it was in advanced talks to buy Sirius Minerals, a U.K.-listed potash fertilizer mining company. The target company's shares surged 35% on the news.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

 

(END) Dow Jones Newswires

January 08, 2020 09:49 ET (14:49 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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