Stock markets across Asia retreated Monday as conflict escalated in the Gulf region and Iran announced it had shut down the critical Strait of Hormuz, causing oil prices to spike and raising fresh concerns about inflation around the world.
The U.S. dollar strengthened alongside bond yields as investors increased the likelihood of the Federal Reserve raising interest rates — just one day before Chair Kevin Warsh is scheduled to appear before Congress for the first time since taking the role.
An inflation report for June, due out Tuesday, may show some easing in the headline rate of 4.2%, partly due to lower gasoline prices — though that relief could be short-lived now that oil is climbing again.
Brent crude surged 3.3% in early trading, reaching $78.50 per barrel and climbing well above its recent low of $70.14. U.S. crude rose 3.4% to $73.83 per barrel.
American officials reported that roughly 20 ships had been guided through the strait over the previous 24 hours, although vessel tracking services showed minimal movement in the waterway.
Stock investors are hopeful that the upcoming earnings season will live up to optimistic projections, with major banks set to begin reporting results on Tuesday. Netflix and General Electric are also expected to release their figures soon.
Analysts at Citi wrote in a research note that “tech continues to screen highly in our models, supported by stand out earnings growth/momentum and attractive valuations.”
The same analysts added, “While AI volatility may remain elevated over the coming quarter, we maintain our Overweight stance on global IT and the U.S. We pair these growth exposures with over weights in cyclical regions/sectors, including Japan, financials and materials.”
Early market moves showed S&P 500 futures slipping 0.3% and Nasdaq futures dropping 0.5%. Japan’s Nikkei index fell 1.0%, following a 1.7% decline last week. The MSCI index tracking Asia-Pacific shares outside Japan dipped 0.2%.
South Korea’s market, which had been on a hot streak, pulled back 0.4% and remained under scrutiny after losing nearly 8% last week as heavily leveraged bets on semiconductor stocks came under strain. The South Korean market has become a closely watched indicator for the global chip industry, meaning further declines there could have wider ripple effects.
South Korean chipmaker SK Hynix saw its U.S.-listed shares jump nearly 14% during their Nasdaq debut on Friday. Separately, news broke after markets closed that Apple had filed a lawsuit against OpenAI and two former employees, alleging theft of trade secrets.
The oil-driven jump pushed 10-year U.S. Treasury yields up 2 basis points to 4.59%. Fed fund futures slipped slightly, pointing to about 34 basis points of policy tightening expected before year’s end.
The dollar index held firm at 101.12. The euro slipped slightly to $1.1403, reflecting Europe’s heavier dependence on imported oil compared to the United States.
Against the Japanese yen, the dollar edged up 0.1% to 161.96, recovering some of the ground it lost Friday after Japanese Finance Minister Satsuki Katayama floated the idea of encouraging the $1.8 trillion Government Pension Investment Fund and other retirement funds to repatriate some of their overseas holdings.
Taylor Nugent, a senior economist at NAB, noted that “the GPIF currently allocates 50/50 between domestic and offshore and a move back even to the pre-pandemic norm closer to 60/40 would come with a large JPY buying flow.”
He cautioned, however, that “while allocations can theoretically be reviewed any time, they tend to be slow moving, and the FY26 investment plan is already in place.”
In commodity markets, the rise in yields weighed on gold, which does not pay interest, sending it down 1.1% to $4,076 per ounce.
