By Kevin Buckland
Asian stocks took a hit on Wednesday, following the sell-off on Wall Street after Iran's ballistic missile strike on Israel raised concerns about a broader regional conflict. Meanwhile, oil prices surged on the risk of supply disruptions.
Investors sought refuge in safe-haven assets, driving down U.S. Treasury bond yields in Asian trading, while gold remained near all-time highs.
The dollar, considered a safe-haven currency, traded close to its strongest level in three weeks against the euro. Macro factors also supported the dollar, with a robust U.S. job market suggesting a smaller interest rate cut by the Federal Reserve in November, and euro zone inflation data pointing towards ECB easing this month.
Asian stocks were in the red, with Japan's Nikkei slumping 1.5%, South Korea's KOSPI dropping 1.3%, and Australia's benchmark index losing 0.3%. The broader MSCI Asia-Pacific index slipped about 0.5%.
Trading in Hong Kong was yet to resume after a holiday, while mainland Chinese markets were closed for the week-long Golden Week holiday. Taiwan's market was suspended due to a typhoon.
In the U.S., stock index futures weakened by 0.16% after a 0.9% decline in the cash index overnight.
Chris Weston, head of research at Pepperstone, highlighted the impact of geopolitical events on market volatility, noting that these events often take precedence over economic factors, corporate earnings, or central bank responses. The ongoing situation between Israel and Iran could have a significant impact on market sentiment.
Iran stated that its missile attack on Israel was over, barring further provocation, but Israel and the U.S. promised retaliation. Oil futures jumped over 1% to $74.33 per barrel, while gold eased slightly to $2,658.63 per ounce.
Benchmark 10-year Treasury yields ticked down to 3.7278%, while the dollar index remained steady at 101.21.
European markets were also affected, with the euro trading at $1.1070 following a drop in the previous session. Euro area inflation data supported expectations of an ECB rate cut.
U.S. economic data showed a solid economy, with Fed Chair Jerome Powell signaling against a larger rate cut next month. Job openings increased unexpectedly in August, but hiring remained soft, reflecting a slowing labor market.
Looking ahead, private payrolls data is scheduled for release on Wednesday, with non-farm payrolls numbers on Friday. U.S. politics will also be in focus, as Vice-Presidential candidates Tim Walz and JD Vance prepare for a debate.
Analysis: The recent geopolitical tensions between Iran and Israel have led to a sell-off in Asian and U.S. markets, with investors seeking safe-haven assets like gold and U.S. Treasury bonds. Oil prices surged on fears of supply disruptions, while the dollar remained strong. The situation remains fluid, and any escalation or de-escalation could have a significant impact on market sentiment. Investors should monitor the developments closely and consider adjusting their portfolios accordingly.