(Feb 20): Asian equities edged lower and oil rose to its highest level since August as escalating tensions in Iran weighed on sentiment on Friday.
The MSCI Asia-Pacific Index dropped 0.4% — its first retreat in three days. Markets reopened lower in Hong Kong after the Lunar New Year holidays, while mainland China remained shut. South Korean shares bucked the broader weakness, rising 2.1% to extend their lead as the world’s best-performing market this year.
Treasuries held their gains and gold hovered around US$5,000 ($6,348) an ounce after haven demand lifted those assets. Sentiment improved with equity-index futures for the US and Europe rising 0.2%. Oil advanced to a six-month high with US President Donald Trump saying Iran had 15 days at most to strike a deal over its nuclear programme, as the US assembled an array of forces in the Middle East.
Markets have stayed cautious as US moves on Iran introduce a fresh layer of geopolitical risk, halting a tentative rebound in equities and dampening broader risk appetite. The renewed tensions threaten to derail a nascent recovery that had begun to take hold after weeks of volatility driven by concerns over artificial intelligence-related disruption across sectors and companies.
“Markets are taking it with a pinch of salt, but there’s still that possibility it could escalate, so you have got to cover yourself,” said Nick Twidale, the chief market analyst of AT Global Markets. “It feels like President Trump is using it as a negotiating tactic. Obviously investors are naturally concerned because it could escalate.”
See also: China gains as Asian stocks avoid AI angst in US
The US military is stationing a vast array of forces in the Middle East, including two aircraft carriers, fighter jets and refuelling tankers. That gives Trump the option for a major attack against Iran as he pressures the country to strike a deal over its nuclear programme.
American military build-up in the Middle East means Iran’s window to reach a diplomatic agreement over its atomic activities is at risk of closing, according to the head of the United Nations nuclear watchdog. A potential war would put flows at risk from a region that pumps about a third of the world’s oil.
“The build-up in US military assets does have a dual purpose of offering the option of a strike on Iranian military targets while also building pressure on Iran,” wrote Tony Sycamore, a market analyst at IG Australia. “The current game of diplomatic ‘cat and mouse’ may extend over the next few weeks before a resolution is found, either of a diplomatic or military nature.”
See also: Stocks, dollar drop as trade jitters hit sentiment
Wall Street gauges fell on Thursday, with alternative asset managers facing sharp declines after private credit fund Blue Owl Capital Inc restricted withdrawals from one of its funds.
Besides Iran, traders are also watching Friday’s readings on the economy and inflation, particularly after minutes of the US Federal Reserve’s (Fed) latest meeting showed renewed concerns about price pressures. Also, the US Supreme Court has scheduled Friday as its next opinion day amid a global wait for a ruling on Trump’s tariffs.
In other corners of the market, the dollar was poised to notch its best week in four months as traders pare back expectations for Fed interest-rate cuts while geopolitical risks boost the currency’s haven appeal.
The Bloomberg Dollar Spot Index has climbed 0.9% this week, set for its biggest gain since October. Heightened inflation concerns and recent US economic data have clouded the outlook for Fed easing this year, buoying the US currency. A continued build-up of US forces in the Persian Gulf has also burnished the appeal of the dollar.
“The lift in oil prices makes the US dollar the preferred safe haven over the yen,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “A sharp increase in risk premium in the oil market will be negative for the risk currencies” like Aussie and kiwi, she said.
Corporate highlights:
- Johnson & Johnson is preparing a potential sale of the orthopedics unit that it has been planning to separate, with big buyout firms already circling, according to people familiar with the matter.
- Ted Sarandos, a co-chief executive officer of Netflix Inc, said his company’s acquisition of Warner Bros Discovery Inc will lead to more films in theatres, addressing a key complaint from Hollywood in the high-stakes battle for one of the industry’s iconic studios.
- Mirae Asset Securities Co shares have more than tripled this year as a proxy bet on Elon Musk’s SpaceX ahead of its potential blockbuster initial public offering.
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Some of the main moves in markets:
Stocks
- S&P 500 futures had risen 0.2% as of 2.02pm Tokyo time on Friday
- Japan’s Topix fell 1.1%
- Australia’s S&P/ASX 200 fell 0.1%
- Hong Kong’s Hang Seng fell 0.4%
- Euro Stoxx 50 futures rose 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to US$1.1754
- The Japanese yen fell 0.1% to 155.19 per dollar
- The offshore yuan was little changed at 6.9019 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to US$67,234.09
- Ether fell 0.4% to US$1,939.03
Bonds
- The yield on 10-year Treasuries was little changed at 4.07%
- Japan’s 10-year yield declined 3.5 basis points to 2.105%
- Australia’s 10-year yield declined five basis points to 4.73%
Commodities
- West Texas Intermediate crude rose 0.5% to US$66.74 a barrel
- Spot gold rose 0.2% to US$5,004.76 an ounce
Uploaded by Tham Yek Lee
