Asian stock markets experienced declines Monday as new drone incidents in the Gulf region drove oil prices higher and affected bond markets, while investors await this week’s earnings report from tech giant Nvidia to gauge the sustainability of the artificial intelligence market surge.
A drone attack sparked a blaze at a nuclear facility in the United Arab Emirates, and Saudi Arabia confirmed stopping three drone attempts, as U.S. President Donald Trump cautioned that Iran needs to move “fast” to secure an agreement.
The crucial Strait of Hormuz continues to allow only minimal shipping traffic as Tehran works to establish formal authority over the passage that previously handled 20% of global oil commerce.
Capital Economics analysts cautioned that “The closure is draining global oil inventories fast,” predicting “Inventories could reach critical levels by end-June, setting the stage for Brent at $130-140pb, if not higher.”
They further warned, “If the strait is closed through year-end and oil stays around $150pb into 2027, that would push inflation to near 10% in the UK and euro zone, send rates back to their recent peaks and lead to global recession.”
Brent crude prices rose 1.2% to $110.63 per barrel, while U.S. crude increased 1.0% to $106.42 per barrel.
G7 finance ministers are meeting in Paris Monday to address the Strait of Hormuz situation and essential raw material supply chains, though political tensions may challenge the group’s unity.
Worries that elevated energy costs will persist and fuel inflation led to significant losses in global bond markets Friday.
U.S. 10-year Treasury yields reached 4.584%, climbing 23 basis points during the previous week, while 30-year bonds hit 5.109% after rising 18 basis points weekly.
Market participants now worry that central banks worldwide may need to implement tighter policies to prevent an inflation surge, with a Federal Reserve rate increase now viewed as having even odds this year.
The Fed’s latest meeting minutes, scheduled for release Wednesday, are expected to reveal the extent of committee pressure for adopting a neutral position rather than maintaining an easing preference.
Japan’s Nikkei dropped 0.4%, following a 2% weekly decline from record levels. South Korean markets fell 2.1% as the previously hot market cooled slightly after semiconductor demand had driven it to historic highs.
MSCI’s comprehensive Asia-Pacific index excluding Japan decreased 0.6%. Chinese markets reached four-year highs last week but face upcoming data releases on April retail sales and industrial production.
S&P 500 futures declined 0.4% and Nasdaq futures lost 0.5% in early trading.
Despite Wall Street’s support from positive earnings, Citi analysts observed that half the earnings improvement came from temporary factors like tariff adjustments and asset revaluations. Both profit gains and overall index performance showed narrow foundations.
Analyst Scott Chronert noted, “We identify 20 stocks that contributed the majority of index earnings upside,” adding that “Forward guidance increases also show a similar narrow focus.”
He emphasized that “Broadening is a necessary condition for meaningful index upside from here,” which “will require a better line of sight to the Iran conflict wind-down.”
The critical artificial intelligence sector faces a key test with Nvidia’s Wednesday earnings announcement, where expectations are extremely high for the world’s most valuable corporation.
Nvidia stock has gained 36% since March lows, while the Philadelphia SE semiconductor index has jumped over 60%, driven by intense chip demand as technology companies invest heavily in AI infrastructure development.
This week also brings earnings from multiple retailers including Walmart, offering insights into consumer responses to elevated energy costs.
In currency trading, risk concerns have supported the dollar as the globe’s most liquid currency. The U.S. position as a net energy exporter provides advantages over Europe and most Asian regions.
The euro traded at $1.1620 after dropping 1.4% last week. The pound remained weak at $1.3318, having plunged 2.3% weekly as political uncertainty compounded existing pressure on the gilt market.
The dollar maintained strength against the yen at 158.64, with only the possibility of Japanese intervention preventing another speculative challenge to the 160.00 technical level.
In commodities, gold remained unchanged at $4,540 per ounce, showing limited appeal as either a safe haven or inflation protection.
