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EU MORNING: Risk Piles Back On As Investors Mull US-Iran

Investors pullback on Oil and Gold hedges

It seems the status quo of Q4 2019 - an inclination to chase risk - is quickly forcing its way back onto the scene as the palpability of expected yet unknown ramifications of US-Iranian tensions fade away.

Again, as the nature and severity of Iranian retaliation for the killing of General Qassem Soleimani isn't concretely known, investors are likely to be far more reactive to developments rather than instituting longer-term defensive positions pre-empting what may or may not transpire. Hence, for the time being, it makes sense that yesterday's risk-off move has faded somewhat with Crude and Gold failing to consolidate yesterday's highs; Crude has skidded almost 1% in trading.

FTSE, DAX set for strong open

European equities are set to follow Asia's reassessment of geopolitical risk with FTSE and DAX both targeting a 43pt and 55pt jump at the open respectively.

UK supermarkets will draw considerable focus over the week with British supermarkets Tesco (TSCO), Sainsbury's (SBRY) and Morrisons (MRW) all due to report second-half earnings. Lacklustre results will likely expedite further re-ratings for all three as European giants Aldi and Lidl continue to aggressively eat away at market share in the UK.

Sterling sympathetic to UK PMIs and ceased preparations for no-deal Brexit

Pound Sterling starts the session marginally off the highs of yesterday's leap following a stronger-than-expected final services PMI print of 50 vs 49.1, and looks to be supported around 1.314 levels should broader risk sentiment hold up its end of the bargain.

The immediate standing down of no-deal preparations by the UK Government, while already largely factored into GBPUSD pricing, only solidifies the removal of no-deal risk premium and shifts attention to the potential of a cliff-edge Brexit; what has been considered the most defining - if not a more economically significant - issue of 2020 for the UK economy.

Aussie Job Ads falter but ASX outperforms on rate cut likelihood

A dismal -6.7% m/m December print for Australian internet and newspaper job ads kept AUDUSD at bay and inching ever closer to the 200d-MA broken late in 2019. Questions were raised about whether the Aussie labour market was experiencing a "gradual turning point" as traders sold the pair down over 0.3% in the Asia session.

The ASX 200, however, was more fortunate buoyed by increased bets that the RBA will continue its low interest rate experiment and cut yet again at their next February meeting. The odds of a 25bps rate cut in February are now at 40% making it a near-even split as to what the RBA do.

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