Equities rally, oil steadies as US-Iran tensions appear to ease

LONDON — Stocks rallied, the dollar jumped and oil prices steadied on Thursday as traders saw an easing of tensions between the United States and Iran that weighed on haven investments such as gold and the yen.

"Stock markets are strong... as US-Iran tensions have faded," noted David Madden, analyst at CMC Markets UK.

"The strong finish in New York last night prompted buying in Asia overnight, so now the bullish sentiment has reached Europe.

"The US and Iran are still at odds with each other, but as long as a conflict doesn't seem to be on the horizon, the feel good factor is likely to last," Madden added.

US President Donald Trump on Wednesday pulled back from the brink of war with Iran, saying Tehran appeared to be "standing down" after firing missiles — without causing casualties — at US troops based in Iraq.

The comments cooled what threatened to become an uncontrolled boiling over of tensions after Trump ordered the killing last Friday of a top Iranian general, Qassem Soleimani.

Oil prices, which spiked briefly to four-month highs on Wednesday soon after the Iranian attack, dropped back below their start point on the softer tone from both sides.

They managed to avoid further losses on Thursday, trading virtually unchanged compared with prices late in New York on Wednesday. 

On Wall Street, the Nasdaq hit another record high on Wednesday while the Dow and S&P 500 indices enjoyed big gains.

The positive mood continued into Asia. Tokyo and Hong Kong rallied around two per cent and Shanghai ended with a gain of 0.9 per cent.

Frankfurt took the lead in Europe, jumping 1.3 per cent in midday deals.

The rush to riskier investments saw gold, seen as a haven in times of unrest, sink more than 1 per cent, having broken $1,600 per ounce for the first time in seven years.

Assuming Iran-US tensions continue to simmer rather than boil, markets are likely to refocus on the global growth outlook and on trade, with the interim US-China trade deal expected to be signed on 15 January," said National Australia Bank's Tapas Strickland.

The lowering of tensions will allow traders to turn their attention to the release Friday of US jobs data, which will provide the latest snapshot of the world's number one economy, with recent figures indicating it remains robust.

Also in focus is the upcoming earnings season, which kicks off this month.

In London meanwhile, the pound slid around half-a-per cent versus the dollar and euro after Bank of England governor Mark Carney said Britain's economic recovery was "not assured" despite a drop in Brexit uncertainties.