DUBAI: Kuwaiti and Saudi stocks led Gulf stocks sharply lower in late afternoon trade yesterday in the wake of a US drone strike in Baghdad that killed Iran’s military commander. Shares of oil giant Saudi Aramco fell 1.7 percent to their lowest level since listing last month in a record initial public offering (IPO).
Aramco shares dropped to 34.55 riyals a share, the lowest level since it started trading last month. Iranian military commander Qassem Soleimani, the architect of Tehran’s overseas military operations was killed on Friday in a US drone strike on his convoy at Baghdad airport. The Kuwaiti index, the best performer in the region in 2019, was down nearly 4.1 percent, while Saudi stocks plunged 2.2 percent.
Dubai stocks were down 3.1 percent with property firm Emaar Properties falling 3.7 percent. The Abu Dhabi index fell 1.41 percent. Banks also took a beating, with Al Rajhi Bank down 2 percent and Samba Financial Group down nearly 3 percent.
“A U.S.-Iran war could shave 0.5 percentage points or more off global GDP, mainly due to a collapse in Iran’s economy, but also due to the impact from a surge in oil prices,” Jason Tuvey, senior emerging markets economist at Capital Economics, said in a note last week. Saudi credit default swaps, which investors buy as protection against default, rose by more than 13 percent on Friday following Soleimani’s killing, Refinitiv data showed.
Regional bond spreads are expected to widen today, when international debt markets open, because of increased political risk, a debt banker said. Oil prices surged as much as $3 a barrel as gold, the yen and safe-haven bonds all rallied on Friday after the US killing of Iran’s top commander. The most dramatic moves were in the oil markets, with Brent crude futures leaping as much 4.5 percent to $69.20 a barrel, the highest level since Saudi crude facilities were attacked in September.
The impact hit almost every asset class. MSCI’s gauge of stocks across the globe declined 0.52 percent, while its emerging markets index lost 0.40 percent. Europe’s broad STOXX 600 index fell as much as 1 percent, but pared losses to close down 0.33 percent, while shares on Wall Street fell around 0.8 percent as New Year optimism, which had pushed equity markets to record highs, evaporated.
The yen rose half a percent against the dollar to a two-month high, the Swiss franc hit its highest level against the euro since September and gold prices climbed to a four-month peak, racing past the key $1,550 an ounce level. “Geopolitics has come back to the table, and this is something that could have major cross-asset implications,” said Salman Ahmed, Lombard Odier’s chief investment strategist.
“What is critical is how it pans out in the next few days,” Ahmed said. “Whether it turns into a theme depends on Iran’s reaction and then the US response.” Iran promised harsh revenge. The Quds Force and its paramilitary proxies have ample means to mount a response.
In September, US officials blamed Iran for attacking the oil installations of Saudi Aramco, the state energy giant and the world’s largest oil exporter. Iran has denied responsibility for the strikes and accused Washington of warmongering. The Trump administration then did not respond, beyond heated rhetoric and threats, and markets settled down within a week after Brent surged 14.6 percent, its biggest one-day percentage gain since at least 1988, on Sept. 16.
Yields on German Bunds and US Treasuries – the world’s benchmark government bonds that are typically seen as the safest assets – fell sharply. The 10-year Bund yield fell 7 basis points to a two-week low of -0.299 percent, while Bund futures were up 0.62 percent at 172.33 euros. Benchmark 10-year Treasury notes rose 26/32 in price to yield 1.7916 percent, from 1.882 percent late on Thursday.
Spot gold prices hit a high of $1,553.20 an ounce. US gold futures settled 1.5 percent higher at $1,552.40. The dollar index rose 0.05 percent, with the euro down 0.09 percent to $1.116. The Japanese yen strengthened 0.41 percent versus the greenback at 108.13 per dollar. The focus on geopolitics meant markets paid little attention to stronger-than-expected data from France, where inflation rose 1.6 percent year-on-year in December, beating analysts’ expectations for a 1.4 percent rise. – Reuters