Asian financial markets drifted without clear momentum on Monday after Iran and the United States agreed to stop a series of retaliatory strikes that had raised doubts about a peace agreement reached earlier this month.
The renewed hostilities began after an Iranian projectile struck a cargo ship in the Strait of Hormuz last week, triggering back-and-forth attacks and accusations from both sides that the other had violated an interim ceasefire. The two nations now appear to be returning to the negotiating table.
On Wall Street, futures tied to the S&P 500 and Nasdaq each gained 0.4% in early trading. In Asia, South Korea’s KOSPI dropped nearly 2% and Japan’s Nikkei fell 1%, pulling MSCI’s broadest Asia-Pacific index down 0.4%.
Nick Twidale, chief market strategist at ATFX Global in Sydney, described the mood in trading as uncertain. “It feels like we are lacking a bit of direction,” he said. “We may get a shot in the arm later today from more positive news out of the Middle East…but at the moment I think it’s going to be a bit of a flow-driven day without major moves to either side.”
Concerns about the durability of the peace agreement pushed oil prices upward. Brent crude futures rose 0.85% to $72.60 per barrel, while U.S. West Texas Intermediate crude climbed more than 1% to $70.01 per barrel. Despite the uptick, oil has given back nearly all the gains it recorded since the conflict began, as traders anticipate an easing of supply restrictions.
The 14-point interim peace agreement, reached on June 17, was designed to end fighting that the U.S. and Israel initiated on February 28, and to reopen the Strait of Hormuz while negotiations continue on matters including Iran’s nuclear program. The latest round of strikes has renewed fears of escalation, though most traders still expect the situation to be resolved.
Marc Chandler, chief market strategist at Bannockburn Capital Markets, summed up the sentiment bluntly: “Markets enter July with a ceasefire that nobody quite trusts.”
Beyond geopolitics, investors are also grappling with concerns about the technology sector. Strategists at BofA Global Research noted that markets appear to be shifting away from large AI-focused companies toward smaller, more cyclical stocks — a sign that the extreme concentration in big tech may be starting to loosen.
Market analyst Tony Sycamore at IG pointed to growing unease about the massive capital spending being undertaken by the largest technology firms on artificial intelligence, and mounting questions about when those investments will produce earnings growth that can justify current stock prices.
Some analysts also attribute recent weakness in big tech to routine month-end and quarter-end portfolio rebalancing, given how strongly those stocks performed through much of the second quarter.
On the currency front, the possibility of further interest rate increases by the U.S. Federal Reserve has strengthened the dollar. The dollar index, which tracks the greenback against six other major currencies, stood at 101.33 — just below the one-year high it reached last week. Easing oil prices could help ease some inflation pressure, but prices remain elevated enough to keep rate-hike expectations alive, with investors pricing in at least one increase this year.
Japan’s yen continued to struggle, sitting at 161.77 per U.S. dollar. Fears of potential intervention by Tokyo have kept the currency from sinking to its lowest level in 40 years.
Gold also felt the pressure of a stronger dollar, falling 0.4% to $4,072 per ounce. The precious metal is on track for a 13% decline in the second quarter — its steepest quarterly drop since 2013.
