Investors are fearing an escalation of tensions in the Middle East. Iran fired missiles at Iraqi facilities housing GIs. The U.S. Defense Department spokesman said the attacks targeted bases in Al Asad in the west and Erbil in the north. A counter-attack that provoked a logical surge in oil prices and a continued revaluation of secure assets, such as gold.

This context of action-reaction will continue in the coming weeks. It will provoke leaps in confidence that are impossible to anticipate, depending on the intensity of the operations decided by each side. The United States has unmatched military power. Iran has both traditional and more modern guerrilla tools.

As it cut rates in 2019, the Fed had already prepared for the instability that we are currently witnessing. So there is a margin and more will be needed for the institution to take further action. For example, a stronger oil price increase of around +20 USD/barrel or a negative market reaction would make it possible to envisage a rate cut in 2020, which is not the case at present. The CME FedWatch tool illustrates this: 90.6% of money market traders expect rates to be kept within the current range of 1.5-1.75%.

Meanwhile, in Spain, Pedro Sanchez returned to power. As expected, the current Spanish Prime Minister will be able to serve his second term in coalition with the radical left of Podemos. As a reminder, he did not obtain the absolute majority he needed in the first round on Sunday. Yesterday's narrow victory, facilitated by 18 abstentions (including 13 from the pro-independence party Esquerra Republicana de Catalunya) underlines the difficulty he will face in getting his measures adopted. In any case, it is a step forward after eight months of political paralysis.

Today, in Europe, we have German factory orders and the French trade balance. In the US, we have the ADP employment survey and weekly oil inventories. Donald Trump is also due to hold a press conference on the situation with Iran later today, but the schedule has not yet been confirmed.