Oil surge, rising yields, war fears hit Asian markets
Asian equities fell sharply as surging oil prices, rising bond yields, and escalating geopolitical tensions from the Iran conflict weighed on risk sentiment.
Asian equity markets tumbled on Monday as a toxic mix of surging oil prices, rising bond yields and deepening geopolitical strains from the Iran conflict rattled investors.
The sell-off extended losses from Wall Street late last week. Oil prices extended gains after diplomatic efforts to end the US-Israeli war on Iran appeared to stall, a drone struck a nuclear facility in the United Arab Emirates, and reports emerged that President Trump is expected to meet top national security advisers to discuss military options. Trump also warned publicly that the clock was ticking for Iran. The combination of higher energy costs and heightened uncertainty is a double blow for risk assets, as it threatens to stoke inflation while dampening growth prospects.
For currency traders, the move is a classic risk-off rotation. The Japanese yen and Swiss franc, traditional safe havens, are likely to see demand, while commodity currencies such as the Australian and New Zealand dollars may face headwinds due to their exposure to global growth and risk appetite. Higher oil prices also have divergent effects: they tend to support the Canadian dollar and Norwegian krone, but weigh on net oil importers like India and Turkey. NowPrice's real-time fx quotes show the dollar index edging higher as investors seek safety.
Looking ahead, markets will focus on the Tuesday Situation Room meeting and any further escalation in the Middle East. On the data front, US consumer confidence and housing data later this week will provide clues on how the economy is absorbing the oil shock. Traders should also watch for any verbal intervention from the Bank of Japan if the yen strengthens too quickly.