Asian equities rose while oil edged lower, suggesting investors are trying to look past near-term geopolitical uncertainty and find a measure of stability in markets.
The MSCI Asia Pacific Index advanced 1.3% — with most of the 11 subgroups rising — setting the gauge up for a third day of gains. That came after the S&P 500 rose 0.3% and the Nasdaq 100 gained 0.5% on Tuesday, marking a second straight day of advances and suggesting cautious optimism despite the conflict in the Middle East.
Brent crude fell around 1% to trade below $103 a barrel even as Iran confirmed the death of its security chief in a further intensification of the Middle East war. Treasuries were little changed with the yield on the benchmark 10-year at 4.20%, suggesting easing inflation concerns.
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The near shutdown of the Strait of Hormuz has rattled energy markets, with the shock reverberating across stocks and bonds amid concern that surging oil prices will stoke inflation. How policymakers respond is now top of mind for investors, especially with the Federal Reserve set to deliver its interest-rate decision later Wednesday.
“There is a growing sense that markets are trying to look through the current tensions,” said Fawad Razaqzada at Forex.com. “Still, markets aren't getting carried away. If the conflict drags on, the risk is that it starts to weigh more heavily on stock markets again.”
In geopolitical news, President Donald Trump abandoned his effort to recruit partners for the war and scolded allies who openly rejected his appeals, even as he repeated claims the conflict would end soon.
Israel said it killed Iran's security chief, Ali Larijani. The development came after Tehran set a massive natural gas field in the United Arab Emirates ablaze overnight. Trump threatened to expand strikes on Kharg Island, Iran's main export hub.
Meanwhile, Russia is sharing satellite imagery and drone technology with Iran, the Wall Street Journal reported.
“Investors should expect continued volatility until the energy situation stabilizes,” said veteran strategist Louis Navellier. Gains for US stocks despite higher oil prices reflect expectations for solid earnings and economic growth, he said.
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In other corners of the market, a gauge of the greenback was little changed while the yen traded at around 159 per dollar. In commodities, gold was steady at around $5,000 an ounce. Bitcoin traded around $74,000.
Based on a study on the past six supply-side oil shocks, on average, it takes around four to five months for oil, the S&P 500 Index and other stock markets to come to the pre-supply shock level, David Chao, a global markets strategist at Invesco Asset Management, said in a Bloomberg TV interview.
Focus later Wednesday will turn to the Fed, which is widely expected to hold rates steady, with attention shifting to how it may respond if the fallout from the war pulls its policy goals in opposite directions.
Bond traders are scaling back some of the aggressive bets that had largely driven markets to price out Fed rate cuts this year. While no change is expected Wednesday, policymakers will set projections on the rates path in coming months. Traders will also scrutinize Chair Jerome Powell's press conference for the central bank's views on rising energy prices against signs of a softening labor market.
“Risk assets like US stocks and cryptocurrencies have held up surprisingly well despite all the turmoil,” said Bret Kenwell at eToro. “Depending on whether the Fed strikes a more dovish or hawkish tone, that could shape the near-term direction for both into quarter-end.”
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 9:53 a.m. Tokyo time
- Hang Seng futures were little changed
- Japan's Topix rose 1.3%
- Australia's S&P/ASX 200 was little changed
- Euro Stoxx 50 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.1535
- The Japanese yen was little changed at 159.08 per dollar
- The offshore yuan was little changed at 6.8834 per dollar
- The Australian dollar was little changed at $0.7109
Cryptocurrencies
- Bitcoin fell 0.9% to $73,887.88
- Ether fell 0.2% to $2,322.93
Bonds
- The yield on 10-year Treasuries was little changed at 4.20%
- Japan's 10-year yield declined two basis points to 2.245%
- Australia's 10-year yield declined three basis points to 4.91%
Commodities
- West Texas Intermediate crude fell 1.5% to $94.72 a barrel
- Spot gold was little changed
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