Asian shares slip as Middle East unrest deepens

Oil climbed and most stocks in Asia followed losses on Wall Street as concerns mounted that an escalation of tensions in the Middle East will trigger a more direct US involvement.

West Texas Intermediate crude rose as much as 1.1% in early trading Wednesday after settling at the highest in almost five months the previous day. US equity futures slipped, as did Australia’s benchmark index and Hong Kong futures. The S&P 500 fell 0.8% Tuesday as weaker-than-forecast economic data added to the US equity decline and boosted bonds before a Federal Reserve monetary-policy decision.

Bloomberg’s index of the dollar climbed the most in a month. Treasuries were supported by the geopolitical risks and also by tepid reports on retail sales, housing and industrial output that added to bets the Fed will cut interest rates at least once more in 2025.

President Donald Trump met with his national security team to discuss the escalating Middle East conflict, according to people familiar with the matter, fueling fresh speculation that the US is on the verge of joining Israel’s attack on Iran.

Trump posted a demand for Iran’s “UNCONDITIONAL SURRENDER” and warned of a possible strike against the country’s leader, Ayatollah Ali Khamenei. “We know exactly where the so-called ‘Supreme Leader’ is hiding. He is an easy target, but is safe there - We are not going to take him out (kill!), at least not for now,” Trump said on social media.

“For now, markets will remain mostly on edge until they lower the temperature in the region,” said Kenny Polcari, chief market strategist at SlateStone Wealth.

Traders also kept a close eye on economic data, with US retail sales down for a second month, suggesting anxiety over tariffs and their finances prompted consumers to pull back after an early-year spending rush. Industrial production dropped and confidence among homebuilders hit the lowest since December 2022.
“Investors should still expect some volatility in economic data due to lingering effects of trade policy,” said Bret Kenwell at eToro. “The economy and the consumer are holding up for now, but there are signs of vulnerability. That could present risks in the second half of the year — particularly if we see a further slowdown in jobs or spending.”

With US central bank officials convening for a two-day meeting in Washington, traders continued to wager on just shy of two quarter-point rate cuts this year — with the first move fully priced in for October. The Fed is expected to keep rates on hold in June and July, but may telegraph its intentions via revised economic and rate forecasts on Wednesday.

A fourth straight meeting without a cut may provoke another tirade from President Trump. But policymakers have been clear: Before they can make a move they need the White House to resolve the big question marks around tariffs, immigration and taxes. Israel’s attacks on Iranian nuclear sites have also introduced another element of uncertainty for the global economy.

“While there has been a strong buy-the-dip mentality with investors having been rewarded for fading negative news this year, we think it’s best to pull back on risk,” said Andrew Tyler, head of global market intelligence at JPMorgan Chase & Co. “Positioning indicates that irrespective of Israel-Iran, the market was setting up for a pullback,” he told clients this week.

Global stocks will beat US equities over the next five years, according to Bank of America Corp.’s latest fund manager survey, supporting the view that investors increasingly see America’s market dominance as coming to an end.

Some 54% of asset managers expect international stocks to be the top asset class, while 23% picked US equities, according to the survey. Only 13% said gold will deliver top returns, and 5% are betting on bonds. It’s the first time that Bank of America’s survey asked investors to predict which asset class will perform best over a five-year horizon.