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Equities Down & Oil Up As Iran Tensions Flare

Jun 26 2019, 05:37 PM (+06) | Orbex.com

Risk assets have traded lower across the week so far as traders respond to the increasing tensions between the US and Iran.

On Monday, president Trump announced a fresh wave of hard-hitting sanctions. This time, their exclusive aim is to negatively impact Iran’s supreme leader Ali Khamenei.

The sanctions are designed to restrict the supreme leader, his office, as well as his closest associates, from accessing key capital resources.

Trump Announces Fresh Sanctions

Commenting on the new sanctions, President Trump said:

“These measures represent a strong and proportionate response to Iran’s increasingly provocative actions… We do not seek conflict with Iran or any other country… I can only tell you we cannot ever let Iran have a nuclear weapon.”

Senior Iranian Figures Targeted

A statement released by the US Treasury explained that the new sanctions target eight senior naval commanders. They also target key aerospace and ground force personnel. The statement said:

“These commanders sit atop a bureaucracy that supervises the IRGC’s malicious regional activities, including its provocative ballistic missile program, harassment, and sabotage of commercial vessels in international waters, and its destabilizing presence in Syria.”

The initial reaction from Iran has been one of outrage. Majid Takht-Ravanchi, the Iranian ambassador to the UN said:

“No one in clear mind can have a dialogue with somebody who is threatening you with sanctions. As long as that is still there, there is no way we can have a dialogue.”

Iranian President Insults Trump

Yesterday, tensions increased further as Iranian president Hassan Rouhani claimed that Trump suffered a “mental disorder.” 

He described the sanctions as “outrageous and idiotic” given that the supreme leader, who is in his 80s, has no overseas assets nor intentions to travel to the US.

However, US secretary of state Mike Pompeo told reporters:

“The supreme leader’s office has enriched itself at the expense of the Iranian people… It sits atop a vast network of tyranny and corruption that deprives the Iranian people of the freedom and opportunity they deserve.”

Military Action Still A Threat

These sanctions come in the aftermath of Trump calling back an airstrike that he had ordered last week.However, the prospect of military action in the future is still very real with Trump saying:

“I think a lot of restraint has been shown by us, and that doesn’t mean we’re going to show it in the future,”

Market Reaction

SPX500

SPX500

Equities prices have started to come off a little this week. Following an earlier surge to fresh all-time highs in the SPX500 last week, fuelled by a dovish FOMC meeting, we’ve seen price dipping back below the prior 2958.68 level high. With the US economy already under the strain of the ongoing trade war with China, the prospect of a military conflict is alarming for markets. And, for now, it has taken focus off the likelihood of further Fed easing which had been supporting price earlier.

Below here, the next big support level is the broken 2018 high of 2877.30. If held, it should keep focus on a continued push higher. Below there, the next major structural support is back down at the 2816.15 level, which would represent a disappointing reversal for bulls.

USOIL

USOIL

Crude prices have been supported as a result of the increase in tensions. Conflict in the Middle East has typically kept oil well bid on expectations of supply disruptions and crude is now back above the 58.04 level. The next topside level to watch is the 60.12 zone where we have previous structure, offering resistance, as well as the bearish trend line from 2019 highs. A break back above this zone would put focus on a move back up to 63.83 next.

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