Iran’s Qeshm Island near Strait of Hormuz hit by US strikes — WSJ

Iran’s Qeshm Island came under attack from the United States (US) on Monday, according to a Wall Street Journal (WSJ) report citing US officials. The strike was the latest in a series of limited attacks Washington has conducted secretly against Iran in recent weeks.

Before the attacks, US President Donald Trump had downplayed the prospect of renewed war with Iran after Tuesday’s midterm elections.

Two US MQM-170 drones were intercepted and downed south of Qeshm Island in the Strait of Hormuz, Iran’s Islamic Revolutionary Guard Corps (IRGC) said, according to Press TV. The IRGC also said the 55th US MQ-9 drone was destroyed east of the Hormuz Strait.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

0.71% gain in WTI

West Texas Intermediate (WTI) is 0.71% higher on the day. At the time of writing, it trades at $95.65.

Risk appetite: FAQs

Market sentiment: what do "risk-on" and "risk-off" describe?

Investors’ willingness to take risk over a given period is commonly described using two financial-market terms: “risk-on” and “risk-off”. Optimism about the outlook characterises a “risk-on” market, with investors more inclined to purchase risky assets. Concerns about the future instead prompt investors in a “risk-off” market to ‘play it safe’. They favour lower-risk assets offering greater certainty of a return, even if that return is relatively modest.

Key assets: which markets indicate shifts in risk sentiment?

A favourable growth outlook typically lifts equities and most commodities, apart from gold, during “risk-on” periods. Higher demand also supports the currencies of major commodity-exporting countries, while cryptocurrencies advance. By contrast, a “risk-off” environment favours bonds, particularly those issued by major governments. Gold performs well, alongside safe-haven currencies including the Japanese yen, Swiss franc and US dollar.

Risk-on markets: which currencies tend to gain?

Stronger risk appetite generally supports the Australian dollar (AUD), Canadian dollar (CAD) and New Zealand dollar (NZD), as well as smaller currencies such as the ruble (RUB) and South African rand (ZAR). Growth in these economies depends heavily on commodity exports. During “risk-on” periods, investors anticipate stronger economic activity and, in turn, greater future demand for raw materials. Commodity prices therefore tend to increase, supporting these currencies.

Risk-off markets: which currencies tend to gain?

Reduced risk appetite typically favours three major currencies: the US dollar (USD), Japanese yen (JPY) and Swiss franc (CHF). The dollar benefits from its role as the world’s reserve currency and from crisis-driven purchases of US government debt. Investors regard that debt as safe because the world’s largest economy is unlikely to default. For the yen, support comes from greater demand for Japanese government bonds. Domestic investors hold a high proportion of these bonds and are unlikely to sell them even during a crisis. The franc benefits from strict Swiss banking laws that provide enhanced protection for investors’ capital.