Escalating conflict between the US and Iran – Danske Bank

Danske Bank analysts suggest that the markets focus remains on the escalating conflict between the US and Iran as Iran has announced that it will no longer abide by the 2015 agreement about enrichment of uranium and the Iraqi parliament has decided that US troops should be expelled from the country.

"Focus is on a possible retaliation from Iran as Trump in a tweet stated that the US would bomb 52 Iranian sites - a specific reference to the 52 US diplomates held hostage under the Iranian revolution - if Iran retaliates. Oil has continued to move higher overnight and the Brent future is above USD70 a barrel, up USD4 since the conflict started. In the FX market we note that USD/JPY briefly dropped below 108 this morning; but is now above Friday night's closing level again. We see a risk that the weekend's events will be viewed as an escalation of the crisis and with a market waiting for a possible Iranian retaliation, uncertainty is expected to stay high. When we combine that with the weakening of the US manufacturing cycle it does not bode well for risk appetite the coming days."