Asian financial markets opened on shaky ground Tuesday, with stocks seesawing between gains and losses and oil prices climbing to their highest point in a month, following President Donald Trump’s announcement that the U.S. would reimpose a blockade on Iranian shipping in the Gulf and charge a 20% levy on all cargo moving through the Strait of Hormuz.
The MSCI index tracking Asia-Pacific shares outside Japan edged up 0.4%, with South Korean stocks leading the way with a 2.2% jump. Japan’s Nikkei 225 gained 0.2%, while S&P 500 e-mini futures slipped 0.1%.
Brent crude futures jumped 2.6% to $85.50 per barrel as Asian trading got underway — the highest price since mid-June.
Chris Weston, head of research at Pepperstone Group Ltd in Melbourne, noted that while tension had been building over the past week, markets reacted sharply to the latest developments in the Iran conflict. “While the risk had been building in the system over the past week, markets reacted aggressively,” he said. He added that “the prospect of tighter monetary policy into a potential energy shock is rarely supportive for risk assets.”
Markets were already on edge following remarks Monday from Federal Reserve Governor Christopher Waller, who suggested the central bank might need to raise interest rates “in the near term” if upcoming economic data show inflation remaining well above the Fed’s 2% target.
On Wall Street the night before, stocks sold off and oil futures surged more than 9% as the U.S.-Iran standoff flared up again, restricting the flow of goods through the Strait of Hormuz. The S&P 500 closed down 0.8% and the Nasdaq Composite dropped 1.6%.
Later Tuesday, U.S. consumer price index data is set to be released, followed by remarks from Fed Chair Warsh, who will present the central bank’s semi-annual monetary policy report to Congress.
Markets are now pricing in a 43.3% chance of a 25-basis-point interest rate increase at the Federal Reserve’s next two-day policy meeting on July 28-29 — up from a 34.2% probability as of Friday, according to the CME Group’s FedWatch tool.
The yield on the 10-year U.S. Treasury bond rose 2.2 basis points to 4.6297%. The U.S. dollar index held steady at 101.29, near its highest levels of the month, while gold slipped 0.1% to $3,997.27.
In Seoul, shares in memory chipmaker SK Hynix were particularly volatile, dropping as much as 4.7% in the opening minutes before swinging to gains of up to 4.6%. The wild swings follow a steep drop the previous day, coming on the heels of the company’s Nasdaq debut last week.
In the cryptocurrency market, bitcoin edged up 0.3% to $62,318.43, while ether rose 0.7% to $1,777.63.
