And finally, European stock markets have closed in the red, although they did recover some of their losses.

The FTSE 100 ended 47 points lower at 7,575 points, down 0.6%.

David Madden of CMC Markets says:

Stocks have sold-off again on account of the US-Iran tensions. The rhetoric from both sides has been upped, which has prompted traders to dump equities. The Iranian regime has suggested it will carry out an attack on US interests as a payback for the killing of one of its military commanders in Iraq last week.

President Trump has warned Iran that any military response will bring about further US attacks. The tense standoff has encouraged traders to curtail their exposure to most stocks. The upheaval in the Middle East has driven up demand for BP, Royal Dutch Shell, Tullow Oil and John Wood shares.

Curiously, the oil price is now dropping back from its earlier highs... and shares are recovering some of their losses.

Brent crude is back down to $69.11 per barrel, up 0.75% today, having been above $70 this morning.

Perhaps KellyAnne Conway’s attempt to calm the situation this morning has worked...as the markets continue to weigh up the likely next move in the US-Iran crisis,

Fiona Cincotta of City Index says investors are awaiting developments....

The selloff in Asia spilt over into the European session with bourses across Europe on the back foot on Monday. Investors are treading cautiously as they wait to see how tensions between Iran and US play out. Whilst the two sides exchange threats investors aren’t leaving much to chance. Flows into safe havens such as the Japanese yen, gold and Swiss franc are on the up, which riskier assets such as equities are out of favour.

Industrial stocks, consumer product-makers and financial stocks are leading the sell-off in New York.

Energy stocks are rising, though, following the jump in crude prices. Miners are also up, as the weaker US dollar pushes up commodity prices.

Donald Trump has now insisted that Tehran will never have a nuclear weapon:

That feels like a response to Iran’s decision not to abide by the limits on enriched uranium agreed in the 2015 nuclear deal.

But as historian Simon Schama points out, it was Trump who undermined that Joint Comprehensive Plan of Action by withdrawing the US from it in 2018.

Some good news: America’s service sector companies grew faster last month.

Data firm Markit has reported that its US Services PMI rose to 52.8 for December, up from 51.6 in November - and better than the ‘flash’ estimate of 52.2.

Any reading over 50 shows growth.

This PMI report suggests the economy grew at a “relatively modest” annual rate of 1.8% in December, Markit adds.

Just in: Donald Trump’s advisor, Kellyanne Conway, has said the president is still confident he can reach an agreement with Iran, despite just ordering Qasem Soleimani’s death.

Could that be an attempt to cool the situation?

Cailin Birch, Global Economist at The Economist Intelligence Unit, predicts that oil prices will remain at current levels for some months, even if the US and Iran avoid full-blown military action.

Birch says:

• The further escalation of US-Iran tensions over the weekend was significant, with Iran promising severe retaliation and Donald Trump threatening Iranian cultural sites and sanctions on Iraq. These threats made it clearer how the US-Iran conflict could spill over into other countries, most notably Iraq, in the volatile oil-producing region. As a result, oil prices jumped above US$70/barrel for several hours.

• This escalation was serious, and as we have noted in recent days, the risk that a policy miscalculation could send the US and Iran into actual war is much higher than it has been in recent months. However, we maintain our forecast that the two countries are likely to avoid outright war. Iran is not in a position financially, after more than a year of crippling US sanctions, to finance a lopsided war with the US. Any serious attack on a US ship, or even less likely, US soil, would prompt a severe response from the US; it is hard to see how Iran could come back from something like that. Donald Trump also puts his re-election campaign at risk if he were to provoke a deeply unpopular foreign war.

• Assuming that the two countries avoid an all-out war, we continue to expect oil prices to hover around US$70/b in the first quarter of 2020. This is higher than our earlier forecast, of around US$65/b, as the two countries launch a series of increasingly violent, but targeted bilateral attacks that keep regional tensions extremely high.

Reuters’ David Gaffen has rounded up some of the latest news and view on oil:

Higher oil prices could soon hit motorists at the pumps, pushing inflation higher.

My colleague Jillian Ambrose explains:

A prolonged oil price surge could raise the risk of a global economic recession, and would add about 2p a litre to the price of petrol at the pumps.

But market analysts at Goldman Sachs and UBS have cast doubt on whether oil prices will continue to rally beyond $70 a barrel due to strong production from outside the Middle East.

Here’s her news story about today’s oil price spike:

Wall Street is expected to fall when trading begins in around 90 minutes.

The Dow Jones industrial average is down around 150 points in the futures market, or -0.6%, on top of the 233 points lost on Friday following Qasem Soleimani’s death.

Anxiety over the Middle East has wiped away any lingering festive cheer in the markets today, with the main indices all solidly lower.

Fawad Razaqzada, market analyst at Forex.com, says the selloff is fairly restrained, despite some sharp moves in the last couple of days.

The new year has started with a bang in so far volatility is concerned. This is mainly due to the escalation of tensions between the US and Iran after Tump ordered the assassination of Iranian military commander Qasem Soleimani, who was killed by a drone strike in Iraq on Friday.

Iran has promised “severe revenge” for the death of Soleimani and has already pulled back from the 2015 nuclear accord. The markets have reacted with crude oil spiking on concerns over further supply disruptions in the Middle East, while gold has soared past its 2019 high on raised safe-haven demand. Stocks have fallen sharply, although the downside has been limited due to expectations that the raised tensions will have minimal impact on global growth.

BAE Systems is now the top riser on the FTSE 100, up 1.8% at 591p, ahead of BP and Shell.

That’s their highest level since October 2018.

Clearly investors think the firm behind the Eurofighter Typhoon jet, the Queen Elizabeth (QE) Class Aircraft Carriers and “Pre-fragmented, Programmable, Proximity- fused” ammunition could do well in the current climate.

The cost of insuring Saudi Arabian government debt against default has spiked today, but still remains low in broad terms.

Saudi credit default swaps jumped to 64 basis points, from 55 on Friday, data firm Markit say.

That means it would cost $64,000 per year to insure $10m of Saudi debt -- suggesting a default is still pretty unlikely.

Shares in the world’s largest oil company have sunk to their lowest level since it floated a month ago.

Saudi Aramco shares have dropped to 34.3 Saudi riyals today, down 0.7%, after dropping 1.7% on Sunday.

Aramco floated at 32 riyals per share last month, and promptly surged 10% as local investors scrambled to take part in the sometime-troubled float.

A rising oil price should be good news for Aramco, but investors appear more concerned that the firm will be hurt by the Middle East crisis.

Germany’s DAX index is having a particularly bad morning.

Each of the 30 stocks on the DAX is in the red, dragging it down to a three-week low.

The technology, basic material, industrial and financials sectors are all down, on concerns that Middle East tensions will hurt growth and push oil prices higher.

European stock markets are on track for their worst one-day fall since the start of December.

Steady selling pressure this morning has pushed the Stoxx 600 down by 1.1%, to a two-week low.

The US-Iran crisis is worrying markets badly, says Jasper Lawler of London Capital Group:

Today’s opening losses extend the stock market weakness that began on Friday when a US airstrike killed Iran’s top Military Commander Qassem Soleimani.

The prospect of Iran avenging the killing of Soleimani and then a retaliation from the US is keeping de-escalation hopes at bay. Defensive industries like utilities are outperforming amid the downturn.

The pound has now gained half a cent against the US dollar.

The better-than-expected UK PMI report is boosting sterling, as it could suggest a pick-up in growth next year. But the dollar is also dipping against other currencies, as traders favour safe-haven options such as the yen.

Over in the eurozone, corporate growth has picked up a little, but remains weak.

Data firm Markit’s survey of service sector activity, just released, has jumped to 52.8 from 51.9 in November, showing faster growth.

But with manufacturing still shrinking, the overall eurozone composite PMI only crept up to 50.9, from 50.6, That’s worryingly close to stagnation.

This chart, from the Society of Motor Manufacturers and Traders, shows how new UK car sales have declined for the last few years:

Breaking: UK car sales slumped by 2.4% last year, to 2.3 million vehicles.

That’s the lowest sales figure since 2013, as Brexit uncertainty and the knock-on impact of the diesel emissions scandal hits demand.

The sell-off is gathering pace fast. Britain’s FTSE 100 has now lost 85 points, or over 1%, with every sector dropping apart from energy.

This takes the Footsie down to 7539 points, back to its lowest point on New Year’s Eve.

The prospect of conflict in the Gulf region has hit shares in airline companies.

International Airlines Group, which owns British Airways, has slumped by 3.3%, as has budget airline easyJet.

European stock markets are all in the red this morning, following losses in Japan and the Middle East.

Germany’s DAX has dropped by 1%, while the UK FTSE 100 is down 0.7% and Italy’s FTSE MIB has shed 1.25%.

Japan’s Nikkei index has started 2020 badly, shedding 451 points or nearly 2% to 23,204.86.

The day began with the traditional ceremonies to start the new trading year, with staff donning kimonos and posing before the electronic screens. But this dash of colour was followed by hefty dollops of electronic red ink, as stocks tanked.

Lee Hardman of Japanese bank MUFG says traders are anxious, and trying to deduce how Iran will respond to the death of its top general.

The significant flare up in geopolitical tensions between Iran and the US has disrupted the calm in financial market at least temporarily.

Our Middle East analyst Ehsan Khoman described the killing of Iran’s commander of the foreign operations branch (Quds Force) of the Islamic Revolutionary Guards corps (IRGC), Major General Qassem Soleimani as a watershed moment in US relations with Iran. He noted that Iran has always had a healthy respect for US military power and it is unlikely to want to be drawn into a direct head-to-head confrontation.

The strategy of responses since the 1979 revolution has been that the Iranian leadership backs down in the face of intense US military pressure. However, he believes it is not clear if the same script applies.