LONDON: Escalating tensions between the United States and Iran dampened equity markets and the dollar Tuesday but lifted haven investments the yen and gold, with the latter striking a near six-year high.
Oil prices steadied despite the US imposing further sanctions on key crude producer Iran, with investors on the sidelines ahead of next week’s key OPEC meeting on output.
Traders looked ahead also to crucial trade talks due this week between US President Donald Trump and Chinese counterpart Xi Jinping.
“Geopolitical tensions weighed on the (stock) markets on Tuesday after the US imposed new sanctions on Iran,” noted Russ Mould, investment director at AJ Bell.
“Investors (are) switching their attention once again to gold as a safe-haven asset.”
The precious metal struck US$1,439.65 an ounce Tuesday, the highest level since September 2013, with a softer dollar lending additional support according to traders.
Japan’s currency, viewed also as a haven investment, jumped to a near six-month high at 106.78 yen to the dollar.
The greenback was down against most other currencies, weighed by expectations the Federal Reserve will cut interest rates as soon as July.
Bitcoin held above US$11,000 after breaking the marker on Monday for the first time in 16 months.
The latest round of US sanctions against Iran’s supreme leader Ayatollah Ali Khamenei and military top brass meanwhile meant the “permanent closure of the path to diplomacy” with Washington, the Islamic republic’s foreign ministry said.
Trump unveiled the new restrictions on Monday, days after Iran shot down a US drone that Tehran said had entered its airspace.
Foreign ministry spokesman Abbas Mousavi’s tweet provided a catalyst to sell Asian shares Tuesday.
However European stock markets were far steadier in midday deals.
Traders were also keeping tabs on developments in the China-US trade standoff as their leaders prepare for crunch talks on the sidelines of this week’s G20 summit in Japan.
World stock markets last week rallied after Trump flagged positive phone talks with Xi.
On Tuesday, Chinese state media said top-level negotiators for both sides had held more discussions ahead of the meeting, and “exchanged opinions on economic and trade issues”.
The call took place “at the request of the US side” and they agreed to maintain contact, the Xinhua news agency said.
“The prolonged trade war between the two largest economies has downgraded global growth as more barriers to trade means higher prices,” said OANDA senior market analyst Alfonso Esparza.
“Optimism remains high, but more details need to emerge before the market can fully price in how far apart the two sides really are.”