LONDON (Reuters) – Global equities fell on Wednesday and Wall Street was set for a weaker open after Iran’s attack on U.S.-led forces in Iraq, but earlier sharp market moves faded as fears abated that the raid would lead to an immediate military escalation.

Investors are waiting now for a statement from U.S. President Donald Trump but his earlier tweet – “All is well!” and “So far, so good!” – has led to hopes that the United States will stop short of strong retaliation.

Iran’s Foreign Minister Mohammad Javad Zarif also tweeted that the Iranians “do not seek escalation or war”.

Oil had surged above $70 a barrel, while gold held at new seven-year highs after the missile attack on the Ain Al-Asad air base and another in Erbil in Iraq, hours after the funeral of an Iranian commander who was killed by a U.S. drone strike last week.

But with no signs of any human casualties from the attack, the dash for safe-haven assets petered out, allowing S&P500 futures, down almost 2% at one point, to trade around flat by 1100 GMT.

The Japanese yen, which surged almost 1% to three-month highs after the attacks, also eased back to trade flat on the day at 108.450. Brent crude futures slipped off highs to below $69 a barrel.

“The live situation was optically quite dramatic but the important thing to focus on is the no-human-casualty dimension, which gives ample space to de-escalate the situation,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers.

“The Trump factor is the random factor but what’s visible is that no one wants war and that’s what markets are focusing on.”

A pan-European equity index slipped 0.2% but after opening 0.5% lower. MSCI’s index of global equities pulled back 0.2% but remained less than 1% off recent record highs.

Earlier, Chinese shares closed more than 1% lower, Japan’s Nikkei lost 1.6% and an MSCI ex-Japan Asian benchmark fell 0.6%.

WAITING FOR TRUMP

Some reckon it will take a hawkish statement from Trump or more attacks by Iran to drive the next phase of the risk selloff.

“We are looking out for whether the U.S. is going to retaliate, so it’s going to be a big wait-and-see mode until we hear from Trump,” Ashley Glover at CMC Markets in Sydney.

“We are seeing that ‘buy the dip’ mentality creeping in as big long-term investors like to buy into these weaknesses.”

Bond-buying also faded, with yields on benchmark 10-year U.S. Treasury notes at 1.81%, down one basis point on the day but well off session lows around 1.705%. The 10-year German government bond yield was unchanged on the day at -0.284% after earlier falling to -0.299%.

U.S. 10-year Treasury futures had earlier peaked at their highest level since November, and were last up 0.18%.

On currency markets, the attacks had sent the yen spiralling to three-month highs beyond 107.7 per dollar but gave up all those gains to trade flat at 108.4. Another safe-haven currency, the Swiss franc, also gave up knee-jerk gains.

“If the market was really worried that the end of the world was nigh, dollar/yen would have collapsed, and that’s clearly not been the case,” said Stuart Oakley, global head of flow FX at Nomura in Singapore.

(Graphic: Iran strikes sends FX markets into a spin click, here)

The euro was 0.2 weaker, buying $1.1129 and the dollar index was up 0.1% at 97.10.

The buying of gold and oil also eased as the trading session wore on – Brent crude futures which had shot to $70 per dollar, were last up 0.5% at $68.1 per barrel.

Gold, which earlier brushed through $1,600 an ounce, eased to $1,582.

Lombard Odier’s Ahmed said he had not reduced equity holdings overall but had increased exposure to energy stocks.

“We adopted a long oil hedge to portfolio and we are maintaining that… Oil may be one market that’s not reflecting geopolitical risks.”

(Graphic: Iran missile strikes jolt gold click, here)

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