Global shares: US, Europe off on US-Iran tensions; Asia mixed

US markets

US equities slipped and safe-haven assets rose Friday on fear of widening conflict after the US killed a top Iranian military commander.  The Dow industrials fell 0.8 percent, the S&P 500 declined 0.7 percent, and the NASDAQ lost 0.8 percent.

Oil prices surged while US Treasuries and gold rallied after a US airstrike killed Iranian Quds Force chief Qassem Soleimani at the Baghdad airport. Iran vowed to strike back hard at the US and its allies.  The US action followed an assault by demonstrators on the US embassy in Baghdad, and the Pentagon said Soleimani was actively planning attacks on US personnel in the region. Markets also reacted poorly to a surprisingly weak US purchasing managers’ report, which pointed to worsening contraction in the industrial sector.

US equities retreated from recent record highs largely on the Iran news, with materials the worst performer, led by metals, with copper prices off sharply. Bank stocks were among the biggest losers on the drop in interest rates. Airlines suffered from the rise in oil prices, with American Airlines off 5 percent, and United down 2.1 percent. Weakness in autos dragged down consumer discretionary shares.  On the positive side, gold mining shares and weapons makers got a lift from the ratcheting up in the US-Iran conflict. Lockheed Martin, the giant aerospace contractor, rose 3.6 percent.

Among companies in the news, Tesla, the automaker, rose 2.9 percent after its Q4 auto deliveries beat market expectations, and the company said its production was expanding in the US and China. On the downside, Incyte, the pharma, fell 9.4 percent on disappointing clinical test results.

In US economic news, ISM manufacturing came in well below Econoday's consensus forecasts, which were nearly all calling for improvement. But at 47.2 in December, the index actually declined from November's lower-than-expected 48.1. This compares with a median forecast of 49.1. Separately, minutes of the December FOMC meeting showed monetary policy firmly on hold until the economy shows either increasing strength or increasing weakness.

These data reflect observations at 4:00 PM US ET:  Dated Brent spot crude oil rose US$2.37 to US$68.60, while gold was up US$21.00 at US$1550.70. The US dollar rose against most currencies but declined vs. the safe-haven yen. The US Treasury 30-year bond yield declined 7 basis points to 2.26 percent while the 10-year note yield fell 8 basis points to 1.79 percent.

European markets

European equities mostly weakened Friday in a shift out of risk assets after a US airstrike killed a top Iranian military commander. The Europe-wide STOXX 600 slipped 0.3 percent, the German DAX fell 1.3 percent, the French CAC was almost flat at up 0.04 percent, and the UK FTSE-100 rose 0.2 percent. 

Oil prices surged on the escalation in Mideast tensions as Iran vowed revenge on the US and its allies. The oil price spike hurt airline stocks in particular, with Lufthansa’s 6.4 percent drop dragging down the German DAX.  On the positive side, the rise in oil prices lifted the UK FTSE-100 in the face of wider weakness, with UK supermajor BP jumping 2.8 percent.

Oil & gas stocks outperformed, along with defensive plays including food & beverages, and real estate. British American Tobacco saw good gains, up 2.7 percent, after US regulators proposed a less stringent ban on e-cigarette flavors than expected. Imperial Brands, another UK cigarette company, rose 2.5 percent on the news. On the downside, travel & leisure, autos, chemicals, and basic resources lagged the most.

In economic news, German unemployment rose 8,000 to 2.279 million at year-end. Following a revised 14,000 decline in November, the increase was small enough to leave the jobless rate unchanged at 5.0 percent, in line with market expectations. However, job vacancies declined 21,000 after a sharper revised 13,000 drop in mid-quarter. This was the largest decrease since they began sliding back in April. The downtrend seems to be steepening. In a separate report, German consumer prices rose 0.5 percent on the month in December. The surprisingly sharp gain lifted annual inflation from November's final 1.1 percent to 1.5 percent, its strongest reading since July.

Asia Pacific markets

Major Asian markets posted mixed results Friday, with a bare regional data calendar keeping the focus on external developments, particularly the US airstrike against Iranian military leaders in Baghdad and subsequent spike in global oil prices. The Shanghai Composite index was flat on the day and advanced 2.6 percent on the week, Hong Kong’s Hang Seng index fell 0.3 percent on the day and rose 0.8 percent on the week, and Australia’s All Ordinaries index closed down 0.7 percent on the day and down 1.2 percent on the week. Japanese markets were again closed Friday, with the Nikkei and Topix indices earlier in the week closing down 0.8 percent and 0.7 percent respectively on the previous week’s level.