Ahead of his News Conference there later today. And samsung shares rise as the Company Beats on Quarterly Earnings. Memory chip prices finally begin to climb out of a persistent downturn. It is 8 00 a. M. Across the emirates, 12 00 midday in hong kong. This is bloomberg daybreak middle east. Im tracy alloway. The middle east never has a shortage of news that this morning with iran announcing a seriesf missile strikes on u. S. Bases in iraq, the First Response to the killing of general soleimani, as i mentioned. Reporters are on standby to walk us through the latest developments. What are we seeing in terms of the reaction from the u. S. . So far, u. S. Reaction has been muted. The u. S. Did not release numbers for casualties, and basically, they are still assessing. President trump says all is well. Basically saying so far all is good. Meantime, meanwhile, we are looking at a response from the iranians where the foreign minister kind of hinted there might be actually a deescalation because the u. S. Already because they already responded to the u. S. In a proportionate way, and he wanted to show that this was in many ways consistent with international law. Across the region, everyone is bracing for, you know, all the races are on high alert. There was a lot of bluster and discussions of revenge in other areas where everyone would be worried about the proxies of iran launching attacks we do not but so far know the deaths andasualties resultg from t attack, it seems maybe we are heading toward deescalation. Tracy i think that is key, the fact that so far, there have been no reports of casualties. Over to Juliette Saly to discuss what we are seeing in markets. Initially, we got that big sponsor, big drop in u. S. Equity futures, but it seems things are recovering this morning. Absolutely. See more of a kneejerk reaction downwards in the last hour or so when we heard the report that there had been a crashing of a boeing 737 jet, but you can see s p 500 futures paring some earlier losses. You still have gold at these april 2013 highs, but off that 1600 level we saw earlier today when it had climbed about 2. 4 in the early asian session. Tracy lets head to aaron for the latest in the oil market. Again, we saw a big reaction when these headlines first crossed the bloomberg. The Brent International benchmark up Something Like 5 . What are we seeing now . Oil has really paired those gains. Like you said, there was an initial kneejerk reaction in oil markets, brent jumping 5 . Right now, it is about 1. 4 up. Closer to 69. It seems like the situation may be deescalating. The concert is there could be a supply disruption in Energy Markets, particularly the strait of hormuz is something people are looking at. In the past, iran has threatened to disrupt shipping or halt shipping and the strait of hormuz. There is nothing to indicate theyre doing that this time, but it is something they have threatened. About 1 3 of the worlds seaborne oil passes through that street. Thats why oil and Energy Markets are looking at this very closely. So far, theres nothing to indicate there is a disruption in oil markets. Tracy mark cudmore, who heads our markets live blog, is with us. What have you heard in terms of investor reaction . Are they reconsidering the iranu. S. Tension threat this morning . If you walk in this morning and looked at markets, it seemed like the overall reaction has been quite subdued. Kneejerk reactions this morning have actually retraced. Looking much are more liquid than they were when we walked in. This shows these markets are very sensitive. The resilience from the start of the year is gone. We came into the new year with most investors looking very bullish, and now already, people are very nervous wondering how long this will last, if this will play out over several months, if this is just a headline story, and that means theres extra risk premium, and extra bid for implied volatility, so i think in the shortterm, that will remain until trump speaks tonight our time, tomorrow morning and u. S. Time. When he speaks and asks more clarity, the next stage of escalation is going to be soon or something on pause. That was the impetus for if we could calm down and get more relief in assets or if we again selloff later on tonight. You mentioned that risk premium in risk assets, but if you look at the s p 500, we are only 1 away from alltime highs. How sensitive is the market going to be to ongoing political tensions between the u. S. And iran is the year goes forward, or will we see investors continue to climb that line of worry . Its a valid question. Generally the theme throughout the years is geopolitics has not had sustained potential to the market. It helps the s p has climbed a wall of worry for some time. There are many worries because of the trade war but assets finished with a high. Means theres still a lot of cash waiting to come in from the sidelines which means the overall backdrop is still quite disruptive for further equity games, but i do think we will see a more sharp reaction and we havetained reaction not seen any direct supply disruption of oil, and i think that is quite important. That means this could become a bigger oil spike which could lead to a broader risk aversion story. Overall, i think this will add and flow for many months. It will not disappear completely from the radar, but we will temporarily forget about it when we move beyond the headlines. It is not dissimilar to how the u. S. China trade war played out where we seemed to move beyond it, seemed to get more optimistic, and suddenly it comes back under the radar. It might be the u. S. Iran escalation is a similar type of idea. A longterm story that suddenly comes to the forefront and 72 hours later is forgotten about again. Itcy we are going to leave there for now. Speaking of the oil market and potential supply disruption, our cost on the middle east show is in abu dhabi this morning and is at the Gulf Intelligence energy forum where he has been speaking to the uae energy minister. Lets get more now. You doing . I think really, given the conversations we have just had, it is important to put this oil market into context of the past 5, 6 months. Dealing with a variety of singular item attacks which caused a pop and the price and the reaction function of the market is quite stoic. To that end, the minister of oil here for the uae says he hopes for no escalation, that wisdom on both sides would prevail, but i think the important point is there is no shortage is in this markets according to him unless there is a catastrophic escalation, and he is not his base case as he walks into the Gulf Intelligence form is that they are not expecting a catastrophic escalation and herein lies the point. Goldman refers to that flexibility which mark touched on. If we look at Market Reaction this morning, it is the biggest Market Reaction since the aramco facilities were attacked back in september. The question is there is ampex apple supply within the opec plus line and just to remind everybody, there is a ,mall issued called america supply, and shale. Tracy yes indeed. It is certainly true we have yet to see a physical supply disruption in the strait of hormuz. We look forward to the conversation you will be having later today as well. Lets bring in the executive director for client investments at tourists wealth advisement at torus wealth advisement. Take a look at this chart, pull it up on the gdb function on your bloomberg if you have one. You can see that big drop in u. S. Equity futures followed by basically whiplash and a lot of those losses being pared back this morning. How should risk assets be pricing this type of geopolitical risk . Question. A very good pricing geopolitical risk is very difficult, but i think potentially geopolitical risk is still very much mispriced, and i think the escalation of the united statesiran tension is potentially leading to some rebalancing in portfolios. We had a very strong market rally in the u. S. , and increasingly, we could potentially see investors putting hedges into portfolios. Gold, as you know, has come out of a 10year bear market. It could be the winner out of this geopolitical risk situation, but we could see evan a bit of a riskoff scenario if gold continues to rise. Tracy you mentioned gold, which has been doing extremely well this morning, moving about 1600 an ounce for the First Time Since 2013, i think. However, theres rumblings about it starting to get overvalued given the strength in the u. S. Dollar as well. If you look at this particular chart, you can see on a technical basis, the relative strength indicator that it is firmly in what would be idered overbought territory. Are you still bullish on gold at these types of valuations . Technically, it could be overbought, but dont forget, this is about big picture game changer. Technical overbought levels do not mean much when people are potentially realizing they are wrongly positioned in global risk assets. The real risk is oil would go 80 plus, i think at 80 plus, it could have a meaningful impact on Global Growth and could potentially crash and affect the policy of potentially having too many rate cuts when we have a stagflation environment. That is the risk factor that is the possibility, that stagflation could become a concern Going Forward. To ask about the inflation risk and how it interacts with u. S. Monetary policy, but before we do, in terms of playing geopolitical tensions, aside from global, what do you do here . Move into safe haven assets like Treasury Bonds or cash or do Something Like by defense stocks, which we have certainly seen other investors doing . This chart shows Aerospace Defense equities have outperformed the broader index over the past two weeks or so. What would be your play on u. S. Iran tensions . It comes back to overall Asset Classes and asset allocation. Allocation to could be thels consensus view, but dont forget, just because it is consensus does not make it wrong. Equities are still supportive, but i think gold is potentially the clear winner of all this. Tracy yeah, the wisdom of crowds theory. Michael, you are staying with us. We will get more of your thoughts on that inflationary outlook on the Federal Reserve as well. Ghosn isad, carlos promising to name the people he says engineered a coup to destroy him at nissan. We are live to beirut this hour ahead of his News Conference scheduled for later today, but before that, as mentioned, policymakers around the world are closely monitoring the situation in the middle east. Central tensions force banks to adjust their stance . This is bloomberg. Tracy middle east markets were closed when news of the iran missile strike crossed the bloomberg today, but lets check in at the Qatar Financial Center in doha about what we have seen in tuesdays trading session and how markets might fair today. Good morning, tracy. It was a bit of a mixed picture for markets overall in the middle east and the region, but we are likely to see a big reaction today. That is why i want to focus today on our petrochemical stopped stocks in the middle east. If you jump into the gdb go with me, these are some of our largest publicly traded names. We can clearly see sort of this divergence between saudi oil. Tocks and Oil Companies clearly, saudi bearing the brunt of the impact. Potentially, this is an effect of the likelihood that iran u. S. Attackste for by attacking saudi oil installations. We are also closely watching the Credit Rating of the companies excuse me, of the countries in the region. Fits coming out with a note yesterday saying most of these geopolitical risks are priced in, pointing to a downgrade of saudi arabia in september. However, paying close attention to a rack, there are two things they said that are not in their outlook that could change that rating. One is u. S. Sanctions. The other is the withdrawal of a waiver on u. S. Sanctions. Make sure you are paying attention to lebanon. That also when they felt that would move significantly. Tracy thanks so much for that. Lets get more on how the iran situation might impact markets as well as monetary policy. Michael price is still with me from our singapore studio. You actually already brought this up, but i wanted to talk about the risk to inflation pricesy these higher oil. You can see we have seen a pickup in breakeven inflation rates. That is the fiveyear there is the price of crude oil has increased in recent days. Is inflation the big tail risk for markets now . Es. If you think there is a further risk of inflation, oil could potentially spike to 80 a barrel and, yes, there would be an effect on the economy. It eventually could add to the global slowdown or Global Growth concern story and that potentially would lead to repricing in risk assets. Tracy how would you expect the fed to react to this new threat, given they are still sort of dealing with u. S. China trade tensions as well. There seem to be quite a few unknowns for the central bank to. Andle here quickset to some extent further complicates an already complicated situation for the economy. While the economy is still strong, and oil spike could be something that needs to be repriced in analyst models, but otherwise, i think well diversified portfolios should be holding up. We might see some rebalancing. Value stocks, reduced growth and momentum stocks, and as i said previously, we potentially could see further increases in Precious Metals in both positions because the trend seems to be your friend. Just because it now becomes consensus does not make it wrong. Tracy right. Speaking of the growth versus value in equities debate, lets talk about the upcoming earnings season. We have seen investors worry about various points in time about a slowdown in earnings growth. What are you expecting and how big a deal will earnings before investors this time around . Become moret could of an important data point. Remember the Strong Equity value we saw last year was mostly driven by multiple expansions. I think what is important is to see if earnings could catch up, and that, of course, could come down to if we see stagflation and an oil strike, but that is very much in the cards and needs to be seen. We hope that these iran tensions do not escalate further because if they do, it could lead to and to somecing changing of assumptions Going Forward. Tracy hard to believe we are only in the first full trading week of january as well and already dealing with multiple types of geo risk events. We are going to leave it there. Thank you so much for your insights this morning. Dont forget, our interactive tv function tv. You can watch us live and catch up on past interviews as well as dive into any of the securities or bloomberg functions we talked about on the show. You can also become part of the conversation by sending us instant messages. If you are one of the investors who happens to be rebalancing this january, you can let us know. Check it out at tv. This is bloomberg. Tracy it is about 7 25 in the morning in riyadh, saudi arabia. Youre looking at live pictures of the kingdoms tower. Oil jumping off the back of that news of iran attacking two u. S. Es, brent searching at surgingt passed 71 at one point passed 71 a barrel. The u. S. Benchmark trading at 63. 50. The question, of course, is if eventuallytaliation goes to encompass physical supply disruption in hormuz. So far, we have not seen any indication of that. Goldman analysts warned they would not expect that to happen. Lets get the latest on business flash headlines. Annabelle samsungs Quarterly EarningsBeat Estimates after memory chip prices began to climb out of a rut. 1 3 at thencome well end of the year betterthanexpected. Demand for dram chips used in smartphones and Services Expected to rise with exports expected to be boosted by the easing of trade tensions between the u. S. And china. In 9 airlines took million in noncash charge to account for a steep drop in demand from supply to hong kong. United said the cost has been fully repaired. Visitor arrivals to hong kong fell 56 from a year earlier including a 43 decline from the u. S. Tesla shares extended their record run and elon musk was so happy about the prospect for his new factory in shanghai that he broke into a dance routine. He attended a ceremony to hand model threes to local customers. Tesla has surged since late october when it reported profit and said the model why will launch months ahead of schedule. Nike signed a multiyear deal to be the official kit provider for liverpool football club, winning a hardfought battle with current supplier new balance. Liverpool is the reigning european and world cup champions and looks set to when the European Championship this year. That is Bloomberg Business flash. Tracy . Tracy thanks so much. Still ahead, carlos ghosn is promising to name the people he says engineered a coup to destroy him. We are live to beirut ahead of this News Conference. This is bloomberg. Markets are paring losses after iran fired a series of missiles on u. S. Military bases in a wreck. How much is this a response to the killing of general soleimani and what kind of response from administration . So far, no reports of u. S. Casualties and iran says it does not want war with the u. S. Donald trump tweeting this morning that all is well after iranian attacks on u. S. Bases in iraq. Speaking of the markets, lets get more on how they are treating with Juliette Saly trading with Juliette Saly in singapore. Paring thosetainly earlier declines, once we saw that tweet from donald trump that all is well and heard from the white house that he wasnt going to be updating the nation tuesday night, you have se