Financial markets got off to a volatile start on Monday, with Asian stocks tumbling and US equity-index futures and crude oil getting whipsawed as the war in Iran entered a fourth week with no sign of de-escalation. Treasuries fell.
The MSCI Asia Pacific Index fell 1.2% with equities dropping as much as 3% in Japan, which returned to trading after a holiday on Friday. South Korea's Kospi Index fell more than 4%. Australian shares declined as much as 2% — heading for a correction.
Crude oil swung sharply, jumping 1.9% initially before reversing to fall nearly 1.8%. The commodity traded at around $112 a barrel. S&P 500 futures were similarly choppy before settling down 0.4%. Australia's 10-year government bond extended losses, with yields on the benchmark note rising 13 basis points on Monday. A Bloomberg gauge of the dollar was little changed.
Tensions in the Middle East showed no signs of easing, with President Donald Trump issuing a 48-hour ultimatum to Tehran to reopen the Strait of Hormuz or face strikes on its power plants, a deadline that expires Monday evening in New York. Iran responded that any such attack would prompt it to shut the waterway indefinitely and target US and Israeli energy infrastructure across the region.
ALSO READ: Stock Market Today: All You Need To Know Before Going Into Trade On March 23
“Pulling back on this war is not Trump's sole decision,” Matt Maley, the chief market strategist at Miller Tabak, said in an interview. “Uncertainty has been increasing for three weeks and the uncertainty took a big jump now. Even if people don't sell, they are not going to be buying — and if there are no bids, it creates a vacuum.”
Global markets have been ravaged by the US-Iran war, which has seen stocks and bonds sell off in tandem last week. US yields are perched at their highest in months after a third straight week of bond losses. Short-term notes led last week's rout, with two-year Treasury yields climbing 18 basis points to 3.90%, following selloffs in European bond markets as investors positioned for higher rates.
The selloff in the US accelerated on Friday as traders started anticipating that the Federal Reserve may shift to hiking interest rates this year as oil prices threaten to deliver a fresh inflation shock. Markets are bracing for similar moves from central banks in Japan, Europe and the UK, even as the war also dampens the outlook for economic growth globally.
ALSO READ: Iran Vows To 'Completely Close' Strait Of Hormuz If US Targets Power Plants
The standoff over Hormuz — through which roughly a fifth of the world's oil and liquefied natural gas normally flows — has deepened a supply crisis already rippling into gasoline prices, fertilizer costs and food production. Traffic through the strait has effectively ground to a halt since the conflict began at the end of February.
After markets closed on Friday, Trump indicated he was looking for a way to pull back from the war by saying on social media that he was considering winding down military efforts in Iran, claiming the US was “very close” to meeting its objectives. But his later threats to bomb power plants — and Iran's vow to retaliate — showed little progress toward a ceasefire.
“It's a soft start for risk, but perhaps surprisingly contained given the ultimatum hanging over the market,” said Chris Weston, the head of research at Pepperstone Group in Melbourne.
The twin risks of rising inflation and potentially weaker growth drove the S&P 500 down by 1.5% on Friday, capping its fourth straight weekly loss, the longest losing streak in a year. The benchmark 10-year Treasury yield surged by 13 basis points to 4.38%, the highest since late July.
ALSO READ: Middle East Conflict, Crude Oil Prices To Steer Stock Markets In Holiday-Shortened Week: Analysts
The S&P 500 Index is now “firmly below” its 200-day moving average and testing its fourth-quarter low of 6,521, said Jonathan Krinsky, chief market technician at BTIG, in a note Sunday.
“Anecdotally, we still get the sense that participants are more worried about missing the ‘de-escalation rip' than any meaningful downside risk,” he wrote. “We continue to see more downside risk than upside reward.”
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.3% as of 9:04 a.m. Tokyo time
- Hang Seng futures fell 2.1%
- Japan's Topix fell 2.6%
- Australia's S&P/ASX 200 fell 1.6%
- Euro Stoxx 50 futures fell 2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.1559
- The Japanese yen was little changed at 159.13 per dollar
- The offshore yuan was little changed at 6.9016 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $67,979.57
- Ether fell 0.2% to $2,055.41
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.40%
- Japan's 10-year yield advanced six basis points to 2.320%
- Australia's 10-year yield advanced 13 basis points to 5.16%
Commodities
- West Texas Intermediate crude rose 0.4% to $98.62 a barrel
- Spot gold fell 1.2% to $4,438.15 an ounce
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.