Asian Stocks Under Pressure, Oil Surges as Iran Conflict Expands
Global stocks weakened and oil prices rose after tensions in the Middle East escalated, triggered by the entry of Iran-backed Houthi forces into the conflict and the increased US military presence. Markets viewed this escalation as increasing the chances of a prolonged confrontation and maintaining energy risk premiums.
In Asia, Japanese and Australian stocks fell, while South Korean stocks slumped about 5%. The MSCI Asia Pacific Index fell nearly 2% at the open. US stock index futures also fell nearly 1% as the conflict entered its fifth week, with rising oil prices raising inflation concerns and threatening growth. On Wall Street, last week's decline extended the longest losing streak since 2022.
Oil prices rallied sharply, with Brent rising more than 3% to around $116 per barrel. The US dollar, a preferred hedge during the war, edged up 0.1%, posting its fifth consecutive day of gains. The yen held steady at around 160 per dollar, while aluminum surged 5%.
Military developments further weighed on sentiment. Israel renewed its attacks on Tehran, Saudi Arabia intercepted nearly a dozen drones, and the Houthis launched missile attacks on Israel. Reports also suggested Trump was considering an operation to extract nearly 1,000 pounds of uranium from Iran, while additional US troops arrived in the region, fueling concerns about a ground operation.
The oil rally increased pressure on risk assets by reinforcing inflation expectations and driving interest rate repricing. Government bonds weakened, yields rose, and the interest rate swap market no longer priced in a Fed rate cut this year; some investors were even starting to price in a rate hike. Bitcoin also weakened below $66,000 after a large options expiration and continued outflows from crypto ETFs.
Some analysts believe the market is entering a “capital preservation” phase, where previously strong positions become vulnerable to profit-taking and unwinding. Macquarie warned that oil could reach $200 per barrel if the war continues into June and Hormuz remains closed, although their base case scenario still points to a faster end to the war. Market focus now turns to further escalation, the direction of oil, and whether inflationary pressures will force monetary policy to remain tight for longer. (asd)
Source: Newsmaker.id
