U.S.-Iran saber-rattling continues, markets bounce back and oil traders calm down. Threat and counter-threatThe head of Iran's national security council said the country is assessing 13 scenarios in response to the killing of a powerful general, adding that even the weakest of them would be a "historic nightmare" for America. The threat follows weekend comments from President Donald Trump in which he warned the U.S. has 52 Iranian sites picked out as targets should Tehran retaliate for the airstrike. While the rhetoric remains aggressive, the lack of any immediate military reaction is starting to ease fears of a rapid deterioration of the situation. Markets recoverInvestors seem keen to put the events in the Middle East aside this morning, with even the statement from Iran only causing a brief dip in equity markets that quickly resumed their recovery from a two-day selloff. The MSCI Asia Pacific Index added 0.9% overnight, while Europe's Stoxx 600 Index was 0.6% higher by 5:50 a.m. Eastern Time. S&P 500 futures pointed to more gains at the open after yesterday's strong close. The 10-year Treasury yield was at 1.814% and gold was unchanged after a strong performance in recent sessions. Oil fallsCrude traders are also taking things more calmly this morning, with the price of a barrel of Brent crude falling below $68.50, down from yesterday's high over $70. Investors are taking the view that the market will remain well-supplied and skirt a major disruption that Goldman Sachs Group Inc. says is needed to maintain elevated prices. That doesn't mean that all is calm, with Asian buyers worried that possible U.S. sanctions on Iraq could disrupt shipments from one of their key suppliers. Hedge fund returnsHedge funds on average gained 8.6% in 2019, according to an index from HFRX, compared to a 32% rise for the S&P 500. D.E. Shaw & Co.'s flagship fund gained about 10.5% last year, with the company set to increase fees from the start of this year to 3% of assets and 30% of profits -- hefty even for one of the pricier funds in the industry. Brevan Howard Asset Management's main investment vehicle returned 8.4% and saw net inflows in 2019. Coming up…The U.S. trade balance for November is published at 8:30 a.m. The final print of November durable goods orders and the December ISM non-manufacturing index is at 10:00 a.m. The consumer electronics show (CES) in Las Vegas continues, with everything from flying taxis and talking toilets to cyborg cars on display. Jeffrey Gundlach's annual "just markets" webcast is broadcast this afternoon. What we've been readingThis is what's caught our eye over the last 24 hours. And finally, here's what Joe's interested in this morningInflation in Europe just accelerated to its fastest pace in eight months. That seems notable, except for two things. One is that it's just headline inflation, which includes oil. Strip that out, and inflation didn't go anywhere in December. But more importantly, the core measure hasn't done anything for years now in Europe. Below is a 15-year chart of euro-area inflation. This is a period that includes the pre-crisis global commodities boom, the Great Financial Crisis, the euro crisis as well as various mini #Eurobooms along the way. And as you can see on the blue line (which is core) is that inflation's never done anything significant either to the upside or the downside. It's been in a tight range this entire time. Central bankers and other economists tend to think about price momentum as a cyclical signal that rises when the economy accelerates or tells us when the economy is getting too hot. But it's extremely hard to look at that blue line and conclude that it tells us anything meaningful about where the economy is in the cycle.  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. | 
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