Asia Poised for Weak Open After Treasuries Sink: Markets Wrap

fmeuw[l[btm)w8makcs9v)lg_media_dl_1.png Nymex, Bloomberg

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(Bloomberg) — Asian stocks faced fresh pressure Tuesday as the Iran war sent oil prices surging, stoking inflation fears that weighed on bonds but left US stocks little changed. The dollar and gold rallied as investors sought havens.

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Equity index futures for Japan and Australia fell, while those for Hong Kong climbed. The S&P 500 ended flat Monday after paring initial declines, while the tech-heavy Nasdaq 100 managed a 0.1% advance. Energy and defense shares gained, several tech firms with solid balance sheets rallied, and airlines sank. Gold topped $5,300.

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The near halt to traffic through the Strait of Hormuz and disruption at a big refinery in Saudi Arabia underscored the threat to oil supplies. West Texas Intermediate crude jumped more than 6% on Monday, while European natural gas prices soared as Qatar shut the world’s largest LNG export plant.

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Concerns that rising energy costs will send inflation higher and curtail Federal Reserve easing weighed on bonds. The yield on 10-year Treasuries climbed 10 basis points to 4.03%. Traders are now fully pricing in a first US rate cut for September, with bets on a third reduction in 2026 almost evaporating. The dollar rose 0.7%.

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“There are more questions than answers right now,” said Chris Larkin at E*Trade from Morgan Stanley. “A stabilizing energy picture could have a positive ripple effect, while concerns about a longer-term disruption could have the opposite.” 

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The greenback climbed against all G-10 currencies Monday, leaving the yen trading around 157 per dollar. Australia’s 10-year yield jumped early Tuesday, as Reserve Bank Governor Michele Bullock said the central bank was “very alert” to the potential implications for inflation expectations from the Middle East conflict and is “well positioned” for a policy response if required.

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As US-Israeli strikes on Iran reverberated across the Middle East, President Donald Trump called on the nation’s leaders to capitulate, while the Islamic Republic’s security chief ruled out negotiations. US Defense Secretary Pete Hegseth rejected the idea of an “endless” war.

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Chinese Foreign Minister Wang Yi called on Iran to pay attention to the “reasonable concerns” of its neighbors, after Tehran’s retaliation against US and Israeli attacks included strikes on other Gulf nations.

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The recovery in major equity indexes from session lows suggests that, for now, the market views the conflict as a relevant geopolitical risk, but one that remains financially contained in the immediate term, according to Antonio Di Giacomo at XS.com.

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Morgan Stanley strategists led by Mike Wilson see the conflict in the Middle East as unlikely to derail their bullish view on US stocks, barring a sharp and sustained surge in oil.

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“In the end, the Iran military action should remove major uncertainty in the world, and the stock market is expected to have a relief rally as new, pro-Western leadership in Iran emerges and crude oil exports resume,” said veteran strategist Louis Navellier.