A financial trader at his desk at CMC Markets in the City of London, Britain, on April 11 2019. Picture: REUTERS/PETER NICHOLLS
A financial trader at his desk at CMC Markets in the City of London, Britain, on April 11 2019. Picture: REUTERS/PETER NICHOLLS

London — World stocks set new highs on Friday and the prices of safe-haven assets such as gold pulled back as investors cheered an apparent de-escalation in US-Iran tensions and looked instead to prospects of improved global growth.

Markets have swiftly reversed the sharp falls seen at the start of the week after the US killed Iran's most senior general, believing it would not lead to a full-scale military confrontation that would rock investor confidence.

The MSCI world equity index, which tracks shares in 49 countries, has quickly resumed its rally and added another 0.1% on Friday to hit a new record high. It is almost 1.5% above the lows seen on Monday.

European shares were mixed at the open, with pan-European euro Stoxx 50 down 0.16%, the German DAX up 0.06% and Britain's FTSE 0.1% ahead.

That followed record levels in the three major share indexes on Wall Street on Thursday. Stock markets have got off to a strong start in 2019 despite US President Donald Trump's decision to kill military commander Qassem Soleimani, the second most powerful figure in Iran, in a missile strike in Baghdad.

Full circle

“In the space of a few days we appear to have swung full circle; with investors seemingly convinced that the problems in the Middle East appear to have settled down, at least for the time being,” said Michael Hewson, chief markets analyst at CMC Markets.

“Investors now have the opportunity to focus on the signing of the new US-China phase one trade deal next week, as well as the health of the US economy today, and in particular the labour market which has continued to look resilient,” he added, referring to all-important US nonfarm payrolls data due at 1.30pm GMT.

While markets judge the US and Iran to be making moves to defuse the tensions, investors also welcomed news that sales of Apple's iPhones in China in December jumped more than 18% on the year.

Investors digested the report as a prelude to the upcoming visit by China's Vice Premier Liu He, head of the country's negotiation team in China-US trade talks, to Washington next week to sign a trade deal with the US.

There were other signs of investors' bullish mood too.

MSCI's emerging market currency index, although little changed on Friday, hit one-and-a-half-year highs on Thursday in what is likely to be its sixth straight week of gains as it has also benefited from three US rate cuts in 2019.

Safe haven assets extended their downward move.

Gold eased 0.1% to $1,550/oz from a seven-year high of $1,610.90/oz hit right after Iran's missile attack on Wednesday.

Against the yen, which investors often buy in times of uncertainty, the US dollar strengthened to a two-week high of ¥109.61.

The dollar was little changed more broadly and against the euro it stood at $1.1108. The euro fell to $1.1091 on Thursday, its lowest in about two weeks.

Oil prices, which spiked earlier this week on worries that tensions with Iran would disrupt global supplies, retreated further.

Brent crude fell 0.3% $65.20 a barrel, and was heading for its first decline in six weeks, down almost 5%. US crude oil dropped 0.4% to $59.33 a barrel and was also on track for its first weekly drop in six, falling 6% from last Friday's close.

Government bond yields, which rose on Thursday as investors' nerves about the situation in the Middle East eased, edged lower in early trading on Friday.

The benchmark 10-year German bond yield fell one basis point to -0.236% but for the week remains up almost five basis points, in a strong signal of investors' willingness to pull back from safe-haven government debt for riskier assets.

The 10-year US treasury yield slipped one basis point to 1.849% but it too remains up six basis points on the week.

“Unless we have external shocks such as a resurgence of US-China trade tensions or a war in the Middle East, it is hard to see the US economy falling apart,” said Hiroshi Watanabe, senior economist at Sony Financial Holdings.

“There could be a great rotation to stocks from bonds. Emerging markets are likely to benefit from investors' bullish mood too,” he added.