Market Morning: Iran Responds, Another 737 Down, Impossible Scraps McDonald’s, Aramco Falls

Stock Market Roundup

Iran Responds, Minimally

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Iran has responded to the killing of General Qassem Solemani with ballistic missiles against US forces in Iraq. As far as the media is aware, there were no US casualties, meaning the response could be little more than a face-saving operation to assuage the Iranian people rather than inflict actual damage on US military forces. Markets are responding as if the situation is about to cool down, with S&P 500 (NYSEARCA:SPY) and Nasdaq (NASDAQ:QQQ) futures climbing from overnight lows, and the Nasdaq now in the green. Gold (NYSEARCA:IAU) and oil (NYSEARCA:OIL) are also falling from overnight highs. Defense stocks (NYSEARCA:XAR) remain elevated in premarket trading though.

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There are conflicting reports in the media as to how or whether Iran will continue in its response. An analysis from CNN points to the Iranian response being specifically designed to avoid US casualties. At the same time, Iran’s Supreme Leader Ayatollah Khamenei has said that the response was insufficient. President Trump is scheduled to speak about the Iranian counterattacks this morning.

Another Boeing 737 Crashes, Killing All 167 On Board

A Ukrainian Boeing (NYSA:BA) 737 has crashed in Iran, and curiously, or perhaps not so curiously, Iran is refusing to give the US access to the black box. The crash shouldn’t exacerbate the ongoing 737 MAX saga since the plane was a 737-800 model that is not equipped with the problematic safety system that caused the crashes of the other two. Ukrainian International Airlines, the airline operating the plane, has suspending all flight to and from Iran in the meantime. The Ukrainian embassy in Iran had first said that the crash was due to engine failure, but later backtracked, saying “any statements regarding the causes of the accident prior to the decision of the commission are not official.” The plane was delivered in 2016, so it is relatively new. The engine, suspected to have failed at least according to preliminary statements, was made by General Electric (NYSE:GE) and Safran (OTCQB:SAFRY).

Impossible For Impossible Foods to Supply McDonald’s With Enough Impossible Meat

Mission: Impossible for Impossible foods. The plant-based imitation meat company has given up on the idea of supplying McDonald’s (NYSE:MCD) with plant-based burgers. The company told Reuters that it could not supply enough of its product to meet the demand from McDonald’s chains. Beyond Meat (NASDAQ:BYND) shares have skyrocketed on the news, on the assumption that now it has a chance to bag the lucrative deal. Impossible Foods CEO Pat Brown told Reuters in an interview that “it would be stupid for us to be vying for them right now … Having more big customers right now doesn’t do us any good until we scale up production.” McDonald’s had tested Beyond Meat’s burgers in September, but has yet to offer them as a main menu feature in its restaurants. The fact that McDonald’s was considering partnering with Impossible Foods however, shows that the chain is at least in principle interested in the idea, implying that the burgers taste good enough, at least for vegetarians and vegans to eat at McDonald’s.

Aramco Down Despite Oil Spike

Saudi Aramco is down on the Tadawul exchange despite oil’s recent price spike on the back of US/Iran saber-rattling and tit-for-tat bombing. The move down indicates that investors in Saudi Arabia may be fearful of an Iranian attack that has the potential to cripple Saudi oil infrastructure if Iran was really intent upon doing so. This would push the price of oil much higher, perhaps even past $100 a barrel. The stock is now down 12% since its IPO or around $200 billion in total market cap. Two Saudi refineries were attacked back in September in Abqaiq and Khurais that slowed Saudi oil production capacity for several weeks. The attacks were done by Yemeni Houthi paramilitary groups, suspecting of being Iranian proxies.

In an interview with CNBC, James Eginton of Tribeca Investment Partners said that markets had not yet priced in the possibility of an Iranian attack on Saudi oil production. It could also do this by blocking the Strait of Hormuz. “If the Iranians want to disrupt oil supply, they will shut down that Strait straight away and that will send oil prices through the roof, and that will trigger a response not only from the Saudis, but will have to trigger a response from the U.S.,” Eginton said.

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