Early Saturday, US President Donald Trump announced that the United States had launched “major combat operations” in Iran in the wake of Israel’s pre-emptive missile strikes on Tehran.
According to Iran’s Tasnim news agency, the United States bombed many places in Tehran.
Israeli Prime Minister Benjamin Netanyahu said the attacks on Iran were aimed at removing an “existential threat.”
Meanwhile, the Israeli military confirmed that the rockets were fired from Iran, triggering sirens in several areas of the country. The Israel Defense Forces (IDF) further noted that Iran carried out retaliatory attacks.
Israel declared a state of emergency and advised its citizens to stay near shelters.
Market implications
A vast wave of risk-off is expected to shake global markets as the recent week begins on Monday, with a hefty flight to safety likely to set gold on fire, with oil prices also surging.
Safe-haven currencies such as the US dollar (USD), Japanese yen (JPY) and Swiss franc (CHF) will be most sought after, while global stock markets may come under huge selling pressure.
Frequently asked questions on risk sentiment
In the world of financial jargon, two commonly used terms, “risk enhancement” and “risk mitigation,” refer to the level of risk that investors are willing to endure over a given period of time. In a “risky” market, investors are positive about the future and are more willing to purchase risky assets. In a “risk-free” market, investors begin to “play it safe” because they are concerned about the future, and therefore buy less risky assets that are more likely to produce a return, even if it is relatively modest.
Typically, during periods of increased risk, equity markets rise, and most commodities – except gold – also boost in value as they benefit from positive growth prospects. The currencies of hefty goods exporting countries are strengthening due to increased demand, and cryptocurrencies are rising. In a risk-free market, bonds rise – especially major government bonds – gold shines, and safe-haven currencies such as the Japanese yen, Swiss franc and US dollar all benefit.
The Australian dollar (AUD), Canadian dollar (CAD), New Zealand dollar (NZD) and smaller currencies such as the ruble (RUB) and South African rand (ZAR) tend to rise in risk-off markets. This is because the economies of these currencies rely heavily on commodity exports for their growth, and commodity prices tend to rise during risky periods. This is because investors anticipate greater demand for raw materials in the future due to increased economic activity.
The main currencies that tend to rise during “risk-free” periods are the US dollar (USD), Japanese yen (JPY), and Swiss franc (CHF). The US dollar because it is the world’s reserve currency and also because in times of crisis, investors buy US government debt, which is seen as safe and sound because the world’s largest economy is unlikely to collapse. Yen, from increased demand for Japanese government bonds because much of them are held by domestic investors who are unlikely to abandon them – even in times of crisis. Swiss franc because strict Swiss banking regulations provide investors with better capital protection.
