Photo Credit: Reuters
Global equities extended their decline in early Asian trading on Tuesday, while the US dollar strengthened, as investors weighed the economic fallout from US and Israeli strikes on Iran, particularly the impact on energy prices and global growth.
MSCI’s broad Asia-Pacific index outside Japan dropped 1%, marking a second straight day of losses. South Korean stocks slid 2.5% and Japan’s Nikkei 225 fell 0.8%, while S&P 500 e-mini futures dipped 0.2%.
Rupal Agarwal, Asia quantitative strategist at Bernstein in Singapore, said geopolitical tensions are compounding already elevated economic policy uncertainty. She noted that a similar spike in risks during the 2022 Russia-Ukraine conflict proved challenging for Asian markets.
On Wall Street, markets steadied after a volatile session. The S&P 500 recovered from earlier losses to finish flat, while the Nasdaq Composite rose 0.4% as investors bought into the dip despite escalating tensions in the Middle East, which have now spread into Lebanon.
Concerns intensified after an official from Iran’s Revolutionary Guards reportedly declared the Strait of Hormuz closed to marine traffic, warning that any vessel attempting to pass would be targeted.
Energy markets reacted sharply. Brent crude futures surged as much as 13% to $82.37 per barrel — the highest level since January 2025 — before settling 7.1% higher at $78.07. European and Asian benchmark LNG prices jumped about 40%.
The spike in oil and gas prices adds complexity to the Federal Reserve’s efforts to contain inflation. Recent ISM manufacturing data showed steady expansion in February, but factory-gate prices climbed to their highest level in nearly three and a half years, underscoring inflationary pressures even before oil prices soared.
Fed funds futures indicate a 97.5% probability that the central bank will keep rates unchanged at its March 18 meeting, according to CME Group’s FedWatch tool. The likelihood of a rate hold in June has also increased to slightly above 50%.
The US dollar index hovered near a six-week high at 98.494 as investors sought safe-haven assets. Meanwhile, the yield on the 10-year US Treasury slipped 1.9 basis points to 4.0288%.
Gold rose 0.2% to $5,336.99. Bitcoin edged down 0.1% to $69,348.85, while ether gained 0.3% to $2,050.50.