Why markets are oddly subdued after Iran's attack on US bases in Iraq: 'You call that a knife?'

Photo by Drew Angerer/Getty Images

• Oil and gold surged and stocks fell initially as Iran fired more than a dozen missiles at US bases in Iraq.
• But markets are now more subdued.
• "So we know the Iranian response at last - this could actually reduce uncertainty unless we see escalation," says one analyst.
• "It'll be a fragile truce," a fund manager told Bloomberg.
• For more stories go to www.BusinessInsider.co.za.

Oil and gold surged and stocks fell as Iran fired more than a dozen missiles at US bases in Iraq, in what appears to be a retaliation for the US assassination of Iranian military chief Qassem Soleimani.

But those initial moves fizzled out as traders gauged the prospects of military escalation.

"You call that a knife?" said Neil Wilson at Markets.com. "So we know the Iranian response at last - this could actually reduce uncertainty unless we see escalation."

Tweets from US President Donald Trump and Iran's foreign minister also eased concerns. Trump tweeted that "all is well" while the Iranian foreign minister's tweet said: "We do not seek escalation or war."

Wilson added: "The implication is that they will not carry out further reprisals and wish to draw a line under the situation. Frankly they've barely scratched the US with this attack - it appears like nothing but a way to save face."

Here's where markets stand as of 10:30 a.m in London (5:30 a.m. in New York):

• • Oil surged initially: Brent was up 0.5% to $68.63. WTI jumped to $65.60 but later retreated to about $63.
  • Gold initially spiked above $1,600 an ounce for the first time since 2013, but pared those gains and was up about 0.5% to $1,582.85.
  • US stocks are set for flat open. Futures underlying the S&P 500, the Dow, and the Nasdaq all hovered between gains and losses under 0.1%.
  • European stocks inched lower. The Euro Stoxx 50 lost 0.2%. The FTSE 100, the CAC Index, and the Dax all fell at least 0.2%.
  • Asian stocks declined. The Shanghai Composite Index dropped 1.2%, while the Hang Seng Index fell 0.8%. The Nikkei dropped 1.6%.
  • The VIX, dubbed the "fear index" rallied about 6%.

The ball is now in the US's court. Donald Trump is expected to speak on the matter on Wednesday morning.

"We think it's going to simmer behind the scenes for most of the year," Patrick Armstrong, chief investment officer at Plurimi Wealth, told Bloomberg. "We don't think there's going to be much of an escalation right now. It'll be a fragile truce."

Other market participants were equally sanguine:

"Central banks are flooding the system with liquidity," Viktor Shvets, head of Asian strategy at Macquarie Commodities and Global Markets, said to Bloomberg after the attack. "Equity investors are quite willing to expect that central banks will fix economic problems, and politics will fix geopolitical problems - and that is why equity markets remain quite placid."