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Gold shines, stocks fall as Middle East tensions trump trade progress


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Gold shines, stocks fall as Middle East tensions trump trade progress

➤ Brent crude briefly crosses $70 mark.

➤ Gold jumps to highest since March 2013.

➤ Wall Street futures fall as global stocks slide.

➤ Dollar ticks down; Treasurys little changed.

Oil prices continued to climb while gold touched multiyear highs as stocks fell across the globe amid simmering tensions in the Middle East.

Brent crude jumped 1.5% to $69.65 per barrel on the ICE Futures Exchange at 6:30 a.m. ET, having briefly crossed the $70 threshold for the first time since May 28, 2019, as U.S. President Donald Trump threatened to sanction Iraq if it expels American troops out of the country. The West Texas Intermediate rose 1.3% to $63.85 per barrel on the New York Mercantile Exchange.

Tensions in the Middle East have flared in the wake of a recent U.S. airstrike in Baghdad, Iraq, that killed a leading Iranian commander. Iran has vowed to retaliate and Trump warned that the U.S. will counter any attack.

Iran's response to the airstrike remains a big uncertainty for markets, according to ING Research's head of commodities strategy, Warren Patterson, and senior commodities strategist Wenyu Yao. "While clearly, the latest developments put U.S. assets in the region at risk, it also increases the risk of disruptions to oil supply in the Middle East," they wrote in a note.

Meanwhile, Tom Barkin, president and CEO of the Federal Reserve Bank of Richmond, flagged an escalation of tensions with Iran as a potential U.S. recession risk. Analysts at MUFG Bank also wrote that "a significant spike in the price of oil would provide a negative shock for the global economy which has only tentatively shown signs of improvement towards the end of last year."

Gold, widely deemed a safe-haven asset, increased 1.7% to $1,578.60 per ounce, the highest since March 2013. Wall Street is set to open lower amid the wider risk-off sentiment, with futures for the S&P 500 and Nasdaq 100 down 0.6% and 0.7%, respectively, tracking losses across Europe and Asia.

The FTSE 100 fell nearly 1%, Germany's DAX index lost 1.6% and France's CAC 40 was 1.1% lower. The wider Stoxx Europe 600 index dropped 1.1%.

Overnight, Chinese stock markets shrugged off reports that Beijing will send a trade delegation to the U.S. on Jan. 13 ahead of an expected signing ceremony for a partial trade deal with Washington. The Shanghai SE Composite index ended the session flat, while Hong Kong's Hang Seng closed 0.8% lower.

Japan's Nikkei 225 index, meanwhile, lost 1.9%. MSCI's index of Asia-Pacific stocks outside Tokyo dropped 1%.

Among currencies, sterling rose 0.6% against the dollar, while the euro gained 0.4% against the dollar and the yen added nearly 0.1%. The U.S. Dollar Index, which tracks the currency's performance against a basket of major peers, fell 0.3% to 96.56.

In the debt market, U.S. Treasurys were little changed as the 10-year yield stayed at 1.786%. The 10-year German bund yield lost 1 basis point to negative 0.288%.

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The day ahead:

8:30 a.m. ET — Canada IPPI

9:45 a.m. ET — U.S. PMI services index (Econoday consensus: 52.2)

12:30 p.m. ET — U.S. TD Ameritrade IMX