Iran Hits the Jackpot
The latest in escalating series of incidents across the Middle East deals with a U.S. drone shot down by Iran. Iran officials said the U.S aircraft was violating its airspace, while the U.S. denies it. Last week, the U.S. accused Iran of attacking two tankers near the Gulf of Oman. The U.S. has been rapidly growing its military presence in the region in response to the escalation of Iran’s behavior. As a result, we believe oil prices rose sharply, with Brent crude, the international benchmark for crude oil barrels, up 2.7% at $62.5 after the news.
Anything “Oil-related” Goes Up
Besides Brent, U.S. oil producers also rose, leading the S&P 500 higher. Energy shares in the U.S. stock index were up 2.2%. The International Energy Agency, the Energy Information Administration, and Organization for Petroleum Exporting Countries (OPEC) have all recently said that weakening growth––somehow driven by the trade tensions––may hinder oil demand in the coming months.
Interest Rates Down
Interest rates, using the 10-year Treasury yield benchmark, are hitting a multiyear low which we believe is once again being driven by the U.S. government debt. The 10-year yield acts as a level that helps set borrowing costs across the economy. Its low levels indicate that the economy isn’t as strong as it was previously believed to be. Across Europe, the 10-year yields for the UK and Italy are at their lowest levels, which may be encouraging investors to move into riskier, higher-yielding investments such as corporate debt and stocks. Falling rates generally weaken the dollar and leave more space to other countries to maneuver their own rates.
Gold Shines Brighter than Ever Before
Following a weaker dollar after the Fed’s suggestion of lowering the interest rates in the coming months, gold’s price goes up. On 6/20/2019, gold futures rose 2.8% to $1,386, putting the securities on course for their biggest one-day advance since last October. Among gold, other industrial metals saw a one-day jump: copper’s 1.5% rise and Nickel’s 1.7% gain. These higher prices may have catalyzed the performance of mining companies specialized in precious metals, which saw a significant rise.