The first trading day of 2020 saw global stocks reach record highs on the news that the Chinese central bank will inject USD 115 billion into China’s financial system. Mainland Chinese stocks reached their highest levels in over a year and Hong Kong listed shares also gained solidly despite the ongoing protests.

The US and China are set to sign a phase-one trade deal next week, however, as one political risk door starts to close, another has sprung wide open in the Middle East. The assassination of an Iranian General via a US drone strike last week was followed by a launch of ballistic missiles by Iran on two US bases in Iraq.

Price moves in gold, oil and treasury yields (at the time of writing) seem to have reached near-term ceilings. Sustaining a rise beyond USD1’600/Oz for gold and above USD 70/barrel for Brent crude would require a significant escalation in hostilities between Washington and Tehran.

Following some initial market anxiety, fears of full blown war seem to have subsided as oil and gold reversed their spikes. Sentiment has been soothed by Iran’s foreign minister saying the country did not seek an escalation in its dispute with the US.

Meanwhile, China is extremely dependent on Gulf oil (46% of oil imports) and has recently held joint naval exercises with Russia and Iran. Whilst this does potentially put the US and China on another collision course, a more realistic focus is that China will be a strong voice against instability.

The Middle East is just one of several political risks on the horizon for 2020: US elections, Brexit and a new trade deal with the EU, alongside unrest across a number of emerging market countries, loom large.