Iran launched hundreds of ballistic missiles at Israel yesterday, and the US and Israel have vowed a response, raising fears of full-scale war in the Middle East.

1. Yesterday saw a large Iranian ballistic missile attack on Iran. The attack was detected well in advance and the USA and UK assisted Israel’s air defences in intercepting the missiles although it is clear that some were able to get through and hit Israel. However, it seems there were zero casualties and damage was quite minimal. The USA has pledged to assist Israel in taking military action against Iran, and Israel has also pledged to retaliate, but has not done so thus far. Israel did hit Hezbollah targets in Beirut last night as that front of the war continues. Iran’s move helped boost the US Dollar as a have and sink risk assets such as stock markets, with most major indices except the Chinese HSI closing firmly lower.
2. The US pledge to assist Israel in a response is surprising to many analysts, as the US has been sending a message of de-escalation lately regarding a regional war. Israeli media has reported that some missiles were filed at Dimona, which according to sources outside Israel is a nuclear weapon production facility. The Iranians have also threatened to further strike Israel with missiles with “astonishing destructive capability” which might be taken as a veiled nuclear threat. It could be that these factors have now placed the US admin in a position where it is prepared to strike Iran in conjunction with Israel, or at least to assist Israel in doing so. It is clear to most analysts that Israel has the capability to land a heavy blow in Iran, but far from clear that it could effectively target Iran’s nuclear weapon production facilities.
3. Crude Oil rose yesterday in response to events in the Middle East, as an Israeli action against Iran could impede oil production in the Middle East. The price seems to have stabilised in recent hours.
4. In the Forex market, the New Zealand Dollar has been the strongest major currency since the Tokyo open today, while the Japanese Yen has been the weakest. However, the numbers are so low as to be probably irrelevant.
5. There were three high-impact data releases yesterday concerning the Forex market:

1. Eurozone CPI Flash Estimate – this came in exactly as expected.
2. US ISM Manufacturing PMI – this was a little lower than anticipated, but not significantly so.
3. US JOLTS Job Openings – this was meaningfully higher than expected, suggesting the US economy may be a little too buoyant for the Fed to cut rates at its next meeting by 0.50%.

6. There will be a release today of the ADP Non-Farm Employment Change forecast.

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