| Welcome to your morning markets update, delivered every weekday before the European open. Good morning. Tensions between the U.S. and Iran remain high, Spain still looks set for a new government and Europe's bond market will get going again. Here's what's moving markets. The Fallout The reverberations from the U.S. airstrike that killed a powerful Iranian general continued throughout the weekend. Iran's defense minister warned of consequences for all those siding with the U.S. and Iran has said it's not bound by its nuclear deal. U.S. President Donald Trump said the U.S. has 52 targets in Iran and said he was prepared to hit Iran in a "disproportionate manner" should any U.S. targets be hit. All of which leaves politicians across Europe scrambling to figure out what they can now do that the nuclear deal lays in tatters. Expect much, much more to come. Bumpy Outlook The main focus for markets following the airstrike has been oil and it could be that crude is in for a very bumpy ride in coming weeks as the U.S. warned that Iran may retaliate with another attack on Saudi Arabia, a move that rocked oil markets back in September. Stocks in the Middle East were savaged on Sunday, following a beating for Tehran stocks on Saturday, as traders reckoned with an outlook for heightened geopolitical tensions in the region and as the predictions for a brighter 2020 for emerging markets were left in tatters less than a week into a new year. European Politics Spain's Pedro Sanchez didn't quite get enough to votes to win the first parliamentary vote on forming a government but remains on track to get over the line in the second vote due on Tuesday, ending a long period of political stagnation for the country. In the U.K., two more prominent candidates through their hats in the ring for the Labour Party leadership, Jess Phillips and Keir Starmer, with a few more still likely to emerge before the timetable for the race is set out this week. Also worth keeping an eye on a growing budget battle in Portugal and the ousting of Croatia's president. Bonds Return European bond sales will get back to business in this first full week of the new year against a backdrop of the U.S.-Iran tensions which may help to keep the asset class popular as a haven play. Investors will also be eyeing the words of two former central bank presidents — Mario Draghi and Janet Yellen — who said Sunday central banks alone don't have the tools to cope with the daunting economic challenges both Europe and the U.S. face. And they'll have to take into account three other senior central bankers who said that low rates could get even lower. Coming Up… Stocks slid in Asia and European futures are pointing to a down day, too, as the tensions surrounding the U.S. and Iran continue to hit sentiment. Gold and the Japanese yen are both higher as investors flee to safe havens and oil is still rising amid concerns about potential supply disruption. It is relatively quiet on the earnings front in Europe, but we'll get services and composite PMIs from across the continent to keep things busy on the macro front. What We've Been Reading This is what's caught our eye over the past 24 hours. And finally, here's what Cormac Mullen is interested in this morning The risk-on mood that characterized much of December has given way to renewed nervousness, as tensions in the Middle East rise amid the fallout from the U.S. killing of Iranian General Qassem Soleimani. For the most part, financial markets are reacting as they did in previous periods of geopolitical tension — modest losses in stocks, a somewhat stronger yen and a pullback in bond yields — with commentators expecting nothing more than a speedbump for risk assets. The moves in commodities are more extreme — oil for obvious reasons — but also gold, which has surged since the airstrike. The yellow metal hit its highest in more than six years Monday and its relative strength index jumped to 86, well above the 70 level that technical traders use to indicate an extreme move. The fact that fellow havens, the yen and Treasuries, haven't risen to such a degree suggest other factors could be exacerbating the rush to gold and it is not necessarily a warning signal. But until the world sees how Iran will respond, a degree of nervousness in risk assets and havens alike looks set to continue.  Cormac Mullen is a cross-asset reporter and editor for Bloomberg News in Tokyo. Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. Learn more. | 
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