Asian stock markets showed resilience on Monday despite heightened geopolitical uncertainty driven by ongoing tensions between Israel and Iran. Investors remained cautious but calm ahead of a critical week filled with central bank meetings. U.S. President Joe Biden joined G7 leaders in Canada, while markets processed a surge in oil prices triggered by fears of regional conflict escalation. Wall Street futures bounced back slightly after an early dip, suggesting market participants are preparing for a data-heavy and decision-sensitive week.
Oil prices added another 1% to last week’s 13% spike, intensifying inflation concerns. This inflationary pressure further reduced the likelihood of any immediate interest rate cuts from the U.S. Federal Reserve, which is set to meet on Wednesday. Analysts expect the Fed to revise its rate outlook, likely reducing the number of forecasted cuts from two to one this year. While markets still hope for a rate reduction by September, upcoming U.S. retail sales data and jobless claims could influence that timeline.
Asian equities fared relatively well, with Japan’s Nikkei gaining 1.2%, South Korea up 1.3%, and Chinese blue chips edging higher. China’s retail sales figures beat expectations, climbing 6.4% in May, while industrial output aligned with forecasts. U.S. stock futures also recovered from last week’s losses, with S&P 500 and Nasdaq futures both showing modest gains. However, last Friday’s market dip, driven by Middle East concerns, still loomed over investor sentiment.
In Europe, markets were more sensitive to the oil shock due to heavy dependence on energy imports. EUROSTOXX and DAX futures dipped slightly, while the FTSE remained steady. U.S. Treasury yields showed minimal safe-haven demand. The currency markets remained stable, though oil-exporting countries like Norway and Canada saw gains in their currencies, while energy importers like Japan and EU nations faced mild pressure. The U.S. dollar held firm, buoyed by America’s position as a net energy exporter.
Elsewhere, central banks in Norway, Sweden, and Switzerland are expected to hold or trim rates, with the Swiss National Bank potentially going negative. The Bank of Japan is likely to maintain current policy but might hint at future tightening or balance sheet adjustments. Gold saw slight gains as a safe-haven asset, while oil continued climbing—Brent reaching $74.95 and U.S. crude rising to $73.82—amid fears the Israel-Iran conflict could threaten supply routes through the Strait of Hormuz.
Source: Reuters