· Safe-haven currencies such as the Japanese yen jumped to their highest in months on Friday after U.S. air strikes on Baghdad airport killed a senior Iranian military official, stoking tensions in the Middle East.
U.S. Treasuries, oil prices and gold rallied after an Iraqi militia spokesman told Reuters that Iranian Major-General Qassem Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis were killed in the attack.
The Pentagon confirmed the strike, saying Soleimani was actively developing plans to attack Americans in Iraq and the Middle East.
The Japanese yen hit a two-month high of 107.92 against the U.S. dollar and was last up 0.5% on the day.
The yen is often seen as a haven from risk, given Japan’s status as the world’s largest creditor nation. A holiday in Tokyo also made for thin conditions, exaggerating the move.
10-year U.S. government bond yields fell to their lowest in three weeks at 1.814%, after trading as high as 1.946% the day before. Bond prices rise as yields fall.
In the currency market, the U.S. dollar traded near flat against a basket of currencies. The dollar index was around 96.835, dipping from an earlier high of 96.873.
· U.S. factory sector in deepest slump in more than 10 years
The U.S. manufacturing sector fell into its deepest slump in more than a decade in December as the U.S.-China trade war kept a lid on factory output, orders and employment, although the long-awaited Phase 1 deal between Washington and Beijing could limit further downside.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 47.2 last month from 48.1 in November. It was the lowest reading since June 2009 and, coupled with readings for both new orders and factory employment at multi-year lows, thwarted expectations for a leveling off in the pace of decline in a sector buffeted by trade tensions.
A reading below 50 indicates the sector is in contraction, and December’s reading marked the fifth straight month below that benchmark level. Economists polled by Reuters had been looking for an increase to 49.0.
The manufacturing sector had been under pressure for much of the second half of 2019, as tit-for-tat tariffs by the United States and China slowed the flow of goods between the world’s two largest economies and contributed to a cooling in the pace of global economic growth.
· According to the minutes from the Federal Open Market Committee's (FOMC) December 10-11 monetary policy meeting, a few policymakers raised concern that keeping rates low for a long time could exacerbate imbalances in the financial sector.
The publication also showed that policymakers judged it was appropriate to keep rates steady and regarded current rate stance as likely to remain appropriate "for a time."
· Fed policymakers broadly see eye to eye on 2020 outlook
- “The economy is still healthy,” Richmond Fed President Thomas Barkin said earlier Friday in Baltimore. Like Mester, Barkin had been skeptical of last year’s rate cuts. “I’m encouraged by recent jobs reports and the pace of holiday spending,” with last year’s round of three Fed rate cuts helping prop up demand for homes, cars and other big-ticket consumer items, Barkin added.
- The fundamentals of the U.S. economy are “good” at the moment and the labor market remains strong with the economy set for a gross domestic product growth rate of 2% to 2.25% for 2020, Chicago Federal Reserve Bank President Charles Evans told CNBC on Friday.
However, Evans also said in the interview that there remains a lot of uncertainty associated with the tariff policy in ongoing trade tensions.
- The Federal Reserve could find itself fighting too-low inflation for years to come, San Francisco Federal Reserve President Mary Daly said on Friday, and may need a new policy framework to lift inflation back up to the Fed’s 2% goal.
- Cleveland Federal Reserve Bank President Loretta Mester, among the Fed policymakers most concerned that easy monetary policy would risk excessive inflation, said on Friday she has put those fears to rest for now and is willing to leave rates at their current level absent some substantial change in the economy.
· Chinese delegation plans to travel to Washington to sign trade deal: SCMP
A Chinese trade delegation is planning to travel to Washington on Jan. 13 for the signing of the U.S.-China Phase 1 trade deal, the South China Morning Post reported on Sunday citing a source briefed on the matter.
The Chinese delegation will return on Jan. 16, SCMP said here
The trade delegation, led by Vice Premier Liu He, had originally planned to set off earlier in the month but had to change plans after U.S. President Donald Trump sent a tweet here claiming that he would sign the Phase 1 trade deal with China on Jan. 15.
· China will keep monetary policy prudent, flexible and appropriate, and continue to deepen financial reforms, the central bank said on Sunday, reiterating previous policy statements.
After a work meeting chaired by People’s Bank of China Governor Yi Gang, the central bank also vowed to prevent any financial crisis, and said it would continue to help small companies seeking financing, according to a statement posted on PBOC’s website.
China’s economic growth cooled to a near 30-year low of 6% in the third quarter, but is expected to meet the government’s full-year 2019 target of 6%-6.5%.
· UK on track for Jan. 31 Brexit as PM Johnson wins vote on deal
Prime Minister Boris Johnson won approval for his Brexit deal in parliament on Friday, the first step toward fulfilling his election pledge to deliver Britain’s departure from the European Union by Jan. 31 after his landslide victory.
· Trump vows to hit 52 Iranian targets if Iran retaliates after drone strike
U.S. President Donald Trump on Saturday threatened to hit 52 Iranian sites “very hard” if Iran attacks Americans or U.S. assets after a drone strike that killed Iranian military commander Qassem Soleimani and an Iraqi militia leader, as tens of thousands of people marched in Iraq to mourn their deaths.
· Iraq wants foreign troops out after air strike; U.S. urges leaders to reconsider
Iraq’s parliament called on Sunday for U.S. and other foreign troops to leave amid a growing backlash against the U.S. killing of a top Iranian military commander that has heightened fears of a wider Middle East conflict.
In a war of words between Iran and the United States, U.S. Secretary of State Mike Pompeo said Washington would target any Iranian decision-makers it chose if there were further attacks on U.S. interests by Iranian forces or their proxies.
The Iraqi parliament passed a resolution calling for an end to all foreign troop presence, reflecting the fears of many in Iraq that the strike could engulf them in another war between two bigger powers long at odds in Iraq and across the region.
· “The Iraqi government must work to end the presence of any foreign troops on Iraqi soil and prohibit them from using its land, air space or water for any reason,” it said.
The United States said it was disappointed in the result.
“While we await further clarification on the legal nature and impact of today’s resolution, we strongly urge Iraqi leaders to reconsider the importance of the ongoing economic and security relationship between the two countries and the continued presence of the Global Coalition to Defeat ISIS,” State Department spokeswoman Morgan Ortagus said in a statement, using an acronym for the Islamic State militant group.
Some 5,000 U.S. troops remain in Iraq, most in an advisory role.
· Iran says no limits on enrichment, stepping further from 2015 deal: TV
Iran announced on Sunday it would abandon limitations on enriching uranium, taking a further step back from commitments to a 2015 nuclear deal with six major powers, but it would continue to cooperate with the U.N. nuclear watchdog.
· Trump threatens to slap sanctions on Iraq ‘like they’ve never seen before’
President Donald Trump threatened Sunday to slap sanctions on Iraq after its parliament passed a resolution calling for the government to expel foreign troops from the country.
· Oil prices surged as much as $3 a barrel as gold, the yen and safe-haven bonds all rallied on Friday after the U.S. killing of Iran’s top military commander in an air strike in Iraq ratcheted up tensions between Washington and Tehran.
Brent settled $2.35 higher at $68.60 after rising as high as $69.20.
West Texas Intermediate (WTI) crude CLc1 rose $1.87 to settle at $63.05 a barrel, after earlier spiking to $64.09 a barrel, its highest level since April 2019.
Reference: CNBC, Reuters, South China Morning Post, FXStreet
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