Top US General Brown: Risk of broader war ‘somewhat’ abated after Israel-Hezbollah clash
Speaking to Reuters after concluding a three-day trip to the Middle East, US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, said early Tuesday that fears of a near-term broader Middle East conflict have ebbed after Israel and Lebanon’s Hezbollah exchanged fire without further escalation.
However, the US top General warned that “Iran still poses a significant danger as it weighs a strike on Israel.”
Additional quotes
“You had two things you knew were going to happen. One’s already happened. Now it depends on how the second is going to play out.”
“How Iran responds will dictate how Israel responds, which will dictate whether there is going to be a broader conflict or not.”
“Hezbollah’s strike was just one of two major threatened attacks against Israel that emerged in recent weeks.”
“Iran is also threatening an attack over the killing of a Hamas leader in Tehran last month.”
Market reaction
Tepid risk sentiment prevails this Tuesday, with the US S&P 500 futures down 0.08% while the US Dollar Index steadies around 100.80, at the press time.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
