Real News, Fake Breakouts

01/10/2020 9:19 am EST


Adam Button

Co-Owner and Managing Director,

While the geopolitical situation—and consequently markets—have stepped back from the ledge of war and heightened volatility, risks still remain, writes Adam Button.

An apparent de-escalation in the U.S.-Iran conflict led to massive reversals in gold, oil and risk trades on Wednesday but that's unlikely to be the final chapter in this story. The New Zealand dollar was the top performer and the Japanese yen lagged in a volatile day of trading. Expect geopolitics to continue to dominate in the days ahead.

On Tuesday, gold rose to its highest level since 2013 and WTI crude oil spiked to $65, but both later reversed to finish much lower. The high-to-low swing in oil was nearly 10%. Equity markets also swung towards solid gains from deep loses.

Real News, Fake Breakouts - Tweet Iran Mkt Rally (Chart 2)

The market thinking now is that both sides have flexed their muscles, while seeking to avoid war. However, that true that maybe at the highest levels, there are hawks on both sides pushing for further action. On the U.S. side that impulse can be restrained by President Trump but he's notoriously moody and impulsive so risks remain high. On Iran's side, leadership has less control over militias and proxies who could act independently.

Along those lines, late on Wednesday a pair of rockets were fired towards the U.S. embassy in Baghdad. So, while top leadership in Iran may want to avoid war, there are some who pine for it. Even if a group unaffiliated with Iran strikes U.S. assets, the blame (and retaliation) may fall on Tehran.

In terms of trading around geopolitics, it remains a minefield. Unlike the worst of President Trump's tweets on the U.S.-China trade war, where selloffs were pronounced in stock indexes, yields and gold, a real war in the Middle East has significant weight on each of those markets in addition to crude oil and the yen. 

The fog of war has descended on news surrounding Iran. There have been multiple rumors and fake reports of attacks in the past week including one shortly before the real attack. So, when the real news began to trickle in, markets were initially skeptical.

A continual risk will be rumors and fake reports about further attacks. That backdrop will make it challenging to stay in risk trades and that strongly argues for stops, managing risk and staying nimble.

Adam Button is co-owner and managing director of and a contributor at You can see Ashraf’s daily analysis at and sign up for the Premium Insights. Ashraf's Tweet on indices here.

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