The positively upbeat mood which marked the start of the New Year hasn’t lasted long as geopolitical tensions have abruptly returned to the forefront of investors’ minds after a US air strike has killed a top Iranian military leader in Baghdad.

Qassem Soleimani was assassinated in a targeted attack with a US Pentagon statement accusing the head of the Iranian Revolutionary Guards’ overseas forces of “actively developing plans to attack American diplomats and service members in Iraq.”

In response, there’s been a clear market reaction with crude oil rallying over 4% higher, European stocks and US futures falling back and safe havens such as government bonds and precious metals catching a bid.

Oil has gained almost $3 since the news first broke with price just moving above the overnight high in recent trade. Source: xStation

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Middle East tensions ratchet up

The act was carried out “at the direction of the president” and is by far and away the most aggressive move from Trump against Tehran since he entered the White House and threatens to lead to further escalation.

The price of Brent crude, an international benchmark for oil, has moved up to its highest level in 4 months after the news broke with the market trading around levels not seen since shortly after the attacks on Saudi production facilities last September.

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Iran has vowed to retaliate and the markets will be on tenterhooks going forward, with the prospect of a significant escalation rising rapidly following these events. When the markets will close this evening, there won’t be many wanting to go home with short positions in crude oil given the chance of another inflammatory event over the weekend, with memories of the 20% gap higher after the Saturday attacks on Saudi Arabia just a few months ago still fairly fresh in the mind.

Source: xStation

Gold has seen some buying pressure as investors seek out safe havens following the events in the Middle East. Price is working on an eighth day of gains in a row and is now less than 10 bucks from last year’s high of $1557. This afternoon the ISM manufacturing PMI (3PM GMT) and FOMC minutes (7PM GMT) could both impact this market.