(March 9): Equities tumbled as crude oil jumped above US$100 ($128.37) a barrel for the first time since 2022 on Monday due to escalating hostilities in the Middle East and worsening strains on oil shipping. Treasuries fell across the curve.
Asia’s benchmark share index slid as much as 5.4% — the most since April — with South Korea tumbling more than 8% and Japan about 7%. Equity-index futures for the US and Europe extended losses to more than 2.5%, indicating the sell-off is set to expand to other regions. As sentiment weakened, the dollar, which has emerged as the haven of choice during this conflict, rose against almost all its major peers.
The market turmoil came as Brent crude oil jumped 18% to around US$109 a barrel, adding to last week’s 28% surge as the US-Israeli war on Iran entered a second week. Major oil producers also began curbing output and traffic through the Strait of Hormuz effectively halted.
Both sides appeared to be digging in for a potentially lengthy conflict, with Iran naming a new supreme leader. President Donald Trump said short-term oil prices, which will “drop rapidly when the destruction of the Iran nuclear threat is over, is a very small price to pay” for “safety and peace”.
Treasuries sold off once again and benchmark US 10-year yields turned higher for the year. Australia’s policy-sensitive three-year yield surged to the highest since 2011, while German bund futures slumped to almost a 15-year low.
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Selling swept across regions and asset classes last week as the geopolitical flare-up added fresh stress to markets that are already under pressure from AI disruptions and worries about the potential for cracks in credit markets. The escalating crisis has left investors caught between the risk of renewed inflation stemming from elevated oil prices and signs of cooling in the US labour market.
“People are going defensive” with markets now trying to grasp how long will this war last, Jun Bei Liu, a co-founder and the lead portfolio manager at Ten Cap Investment, said in a Bloomberg TV interview. “Investors are worried what is going to happen to the global growth should the oil remain at the current levels.”
On Sunday, Iran pressed attacks on neighbours, while Israel struck fuel depots in Tehran and threatened the Islamic Republic’s power grid. Trump warned the US would consider targeting areas that weren’t previously aimed at. The attacks will continue “until they surrender or, more likely, completely collapse!” he said in a social media post.
See also: Oil leaps, stocks fall on war and credit fears
The United Arab Emirates and Kuwait started reducing oil production, as the near-closure of the crucial Strait of Hormuz — a waterway crucial for the global flow of oil — rippled through energy markets and affected global supply.
The effective closure of the narrow waterway linking the Persian Gulf to the open sea has clogged up exports from the world’s top oil-producing region.
“This is no longer just about Hormuz being effectively shut, it’s about supply disruption spreading deeper into the region,” said Dave Mazza, the chief executive officer of Roundhill Financial. “That is the kind of shift that can push already-nervous investors to take more risk off the table.”
That is evident in the bond market. Just as investors closed their books on a month when mounting concerns over corporate risks fuelled demand for the perceived safety of Treasuries, the US-Israeli attack on Iran raised a whole new set of worries — and triggered a different response.
Instead of acting as a refuge, US government bonds took their cue from surging crude prices and yields shot up, with inflation fears taking centre stage at a time when prices are already running higher than central banks would like.
Another key area of focus was the strength of the dollar. The Bloomberg Dollar Spot Index rose 0.5% on Monday.
“The dollar is the biggest beneficiary in the current environment, given the USD’s safe haven status and the US’ position as a net energy exporter,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “How much higher the dollar will go from here depends on the depth and duration of the conflict, which remains highly uncertain.”
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Meanwhile last Friday in the US, non-farm payrolls fell 92,000 last month, one of the largest declines since the pandemic. The unemployment rate rose to 4.4%.
Spiking oil prices may precipitate a stock market correction rather than a bear market, but the latter is possible, said Ed Yardeni, the president of Yardeni Research. If investors start expecting stagflation, a bear market is more likely.
“The worst is yet to come in the stock market reaction,” said Michael O’Rourke, the chief market strategist of JonesTrading. “I would expect more of a risk-off mood until we get some tangible positive news.”
Some of the main moves in markets:
Stocks
- S&P 500 futures were 2.2% lower as of 10.50am Tokyo time
- Nikkei 225 futures (OSE) fell 7.4%
- Japan’s Topix fell 5.8%
- Australia’s S&P/ASX 200 fell 4.3%
- Hong Kong’s Hang Seng fell 2.9%
- The Shanghai Composite fell 1.3%
- Euro Stoxx 50 futures fell 2.8%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.9% to US$1.1512
- The Japanese yen fell 0.5% to 158.64 per dollar
- The offshore yuan fell 0.4% to 6.9308 per dollar
Cryptocurrencies
- Bitcoin fell 1.1% to US$66,453.76
- Ether fell 0.3% to US$1,953.3
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.19%
- Japan’s 10-year yield advanced five basis points to 2.210%
- Australia’s 10-year yield advanced 14 basis points to 4.98%
Commodities
- West Texas Intermediate crude rose 25% to US$113.47 a barrel
- Spot gold fell 1.8% to US$5,077.29 an ounce
Uploaded by Tham Yek Lee
