New Iran strikes unlikely if talks advance, says US President Donald Trump

Further US strikes on Iran are “highly unlikely” if talks on its nuclear programme and the reopening of the Strait of Hormuz make progress, US President Donald Trump said, according to a CNN report on Sunday.

Trump made any further action conditional on an agreement, saying: “It depends on whether or not they sign a very strong agreement,” and adding: “The answer is highly unlikely it will be necessary.” He also said: “I would if necessary, but we hit them really hard,”

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Following last week's US midterm elections, diplomacy returned to the spotlight. Qatar, the chief mediator between the US and Iran, said Iran was considering proposals relating to its nuclear programme.

That assessment contrasted with remarks on Sunday from Iranian Foreign Minister Abbas Araghchi, who said mediators had neither made progress nor taken any action in the days since the US elections.

Separately, an attack by the Iranian-backed Houthis in Yemen damaged a landmark in the Saudi Arabian capital's financial district. The offices of oil giant Saudi Aramco also sustained minor damage on Sunday as the city defended itself against a fresh barrage of ballistic and cruise missiles.

How does risk sentiment affect markets?

How do “risk-on” and “risk-off” describe financial market sentiment?

Investors' willingness to take on risk at a given time is commonly described in financial markets using the terms “risk-on” and “risk-off”. Optimism about the outlook encourages investors to buy riskier assets in a “risk-on” environment. By contrast, concern about the future prompts a more cautious approach in a “risk-off” market. Investors then favour lower-risk assets that offer greater certainty of returns, even if those returns are relatively modest.

Which assets offer the clearest signals of changes in risk sentiment?

A favourable growth outlook typically supports equities and most commodities, apart from Gold, during “risk-on” periods. Stronger demand also lifts the currencies of major commodity-exporting countries, while cryptocurrencies advance. When markets turn “risk-off”, bonds, particularly major government bonds, tend to gain. Gold also benefits, alongside safe-haven currencies including the Japanese Yen, Swiss Franc and US Dollar.

Which currencies tend to gain in a “risk-on” market?

A “risk-on” environment generally supports the Australian Dollar (AUD), Canadian Dollar (CAD) and New Zealand Dollar (NZD), as well as less widely traded currencies such as the Ruble (RUB) and South African Rand (ZAR). Growth in these economies depends heavily on commodity exports. As investors anticipate stronger economic activity and greater future demand for raw materials, commodity prices tend to increase, supporting these currencies.

Which currencies typically benefit from “risk-off” sentiment?

During “risk-off” periods, the US Dollar (USD), Japanese Yen (JPY) and Swiss Franc (CHF) are the major currencies that generally strengthen. The US Dollar benefits from its role as the world's reserve currency and from crisis-driven demand for US government debt. Investors regard this debt as safe because the world's largest economy is considered unlikely to default. Demand for Japanese government bonds supports the Yen: a large share of these bonds is held by domestic investors, who are unlikely to sell them even during a crisis. The Swiss Franc draws support from Switzerland's strict banking laws, which provide investors with greater capital protection.