Stocks Fall, Oil and Dollar Increase on Iran War – Asia Market Wrap

Stock losses widened and bonds were sold off as Iran escalated its attacks on the US and its Middle Eastern allies, driving up oil prices and fuelling inflation fears. The Dollar strengthened.

The MSCI Asia Pacific Index fell as high as 2.8%, marking the largest two-day drop since April. South Korea’s Kospi Index, the world’s second-best-performing stock market this year, fell as much as 6.8% after the country returned from a long weekend. Equity-index futures in the United States and Europe fell about 1%, indicating that additional losses are ahead.

Investors remained focused on oil, which extended gains as the US and Israel escalated their fight against Iran, while Tehran threatened to close the Strait of Hormuz, a critical passageway for petroleum movement. Brent surged above $80 per barrel after surging more than 7% on Monday. Rising oil prices raised fears about the outlook for global bonds, prompting traders from Sydney to Tokyo to sell government paper.

The Iran war is also reigniting inflation fears in financial markets, dampening the outlook for global bonds, which had recently enjoyed their strongest start to a year since the epidemic.

Traders from Sydney to Tokyo have been offloading government debt since Monday, as they anticipate how a prolonged conflict in the Middle East will drive up oil prices and boost inflation. These fears are weakening fixed-income assets’ appeal as safe havens, with government bonds in the US, Japan, Australia, New Zealand, and South Korea all losing value this week.