Monday mayhem: Markets take a nosedive as US-Iran tensions flare-up

Stocks, bonds and the rupee all sold off sharply on Monday amid fears of continued geopolitical tensions after US President Donald Trump warned Iran that it would retaliate if Tehran carried out an attack against the US to avenge the killing of a powerful military commander.

The Sensex plunged close to 788 points while the rupee fell to levels of 72.12 against the dollar in intra-day trades, over anxiety the import bill would widen on more expensive crude oil. The currency recovered at the close of the session to Rs 71.94.

Gold soared to six-year highs as investors rushed to move money to safe haven assets. Crude oil prices ruled at $69.40 per barrel, after crossing the $70 mark to hit $70.74 per barrel, intra-day, a 14-month high.

Escalating tensions in the West Asia — with the US also threatening very big sanctions against Iraq if it called for a vote in Parliament to expel US troops based in the country — left investors jittery across most markets. Markets across Asia — Shanghai, Hong Kong, Tokyo and Seoul — lost value of anywhere between 0.8% and 1.3% while European markets saw weak openings.

However, India sold off much more — close to 2% — than its Asian peers since rising crude oil prices will hurt its economy relatively more and also because it is very expensive. A $10 increase in crude prices pushes up India’s monthly import bill by $1.5 billion and headline CPI by around 0.4%,” forex advisory firm IFA Global said in a note.

Investors have seen their wealth eroded by Rs 3.4 lakh crore in the last two sessions after the Sensex crashed nearly 788 points on Monday to close at 40,676.63, giving up 787.98 points, or 1.90 %. The Bank Nifty plunged 832 points since a depreciating rupee and fears of rising inflation could pressure lenders’ investment portfolios.

The Nifty tumbled around 234 points to close at 11,993.05 losing 1.91%. The yield on the benchmark bond climbed six basis points to end the session at 6.571%.
UR Bhat, director, Dalton Capital Advisors, cautioned any further rise in crude oil price prices would weaken the country’s trade gap hurting the currency and interest rates. “If oil companies are unable to pass on the higher prices to consumers we will see further fiscal slippages,” Bhat said.

Bhat added it was possible Monday’s risk-off trade could become more severe. The nervousness in the markets was reflected in the India VIX, which jumped 16% on Monday. The broader markets also came under strong selling pressure today with BSE midcap and small cap indices falling over 2% each.

Gold prices hit an all-time high in New Delhi to touch Rs 41,730 per 10 g while prices of silver soared to Rs 49,430 per kg; globally gold traded with gains at $ 1,575 per ounce and, likewise, silver also quoted higher at $18.34 per ounce. Brent crude prices have shot up by more than 5% higher in the last two sessions – crossing the $70 per barrel mark with investors scared of the fallout from the US air strike that killed a top Iranian general.

Source: Financial Express