SYDNEY: Asian stock markets declined on Monday after escalating tensions in the Gulf raised concerns about global energy supplies. Investor sentiment weakened after Iran claimed it had closed the Strait of Hormuz, a key global oil shipping route, leading to a sharp rise in crude oil prices and renewed fears of higher inflation worldwide.
The market reaction reflected growing uncertainty over the potential economic impact of the regional conflict, with investors closely monitoring developments in the Middle East.
Oil Prices Jump on Supply Concerns
Global benchmark Brent crude rose 4.1% to $79.11 per barrel, recovering from a recent low of $70.14. Meanwhile, US West Texas Intermediate (WTI) crude also gained 4.1%, reaching $74.37 per barrel.
The price surge came after concerns that any disruption to shipping through the Strait of Hormuz could significantly affect global oil supplies. The waterway is one of the world’s most important energy transit routes, carrying a substantial share of internationally traded crude oil.
US officials said approximately 20 vessels had been escorted safely through the strait during the previous 24 hours, although shipping data indicated that overall maritime traffic remained limited.
Asian Stock Markets Extend Losses
Higher oil prices and concerns about inflation weighed heavily on equity markets across the region.
Japan’s Nikkei 225 fell 1.6%, extending last week’s losses, while the MSCI Asia-Pacific Index (excluding Japan) dropped 0.9%.
South Korea’s stock market recorded one of the sharpest declines, with the Kospi losing 5.4% after falling nearly 8% during the previous week. Analysts said leveraged investments in semiconductor companies came under pressure, contributing to the sharp sell-off.
US stock futures also pointed to a weaker opening, with S&P 500 futures down 0.4% and Nasdaq futures declining 0.9%. In Europe, futures for the EURO STOXX 50 and Germany’s DAX both fell 0.6%, while FTSE futures slipped 0.1%.
Investors Eye Earnings Season
Despite the market volatility, investors are looking ahead to the start of the US corporate earnings season, which begins this week with major banks reporting their quarterly results. Technology companies, including Netflix, and industrial giant General Electric are also scheduled to release earnings.
Analysts at Citi said the technology sector continues to benefit from strong earnings growth and attractive valuations despite short-term volatility linked to artificial intelligence (AI). The bank maintained an overweight recommendation on global information technology stocks while also favouring cyclical sectors such as financials, materials, and Japanese equities.
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However, analysts at Bank of America (BofA) cautioned that heavy investment in AI infrastructure is putting pressure on cash flows. They noted that major technology companies have spent an estimated $234 billion on AI-related capital expenditure this year, potentially affecting future profitability.
Dollar Strengthens as Fed Expectations Shift
The surge in oil prices also pushed US Treasury yields higher as investors reassessed the outlook for US monetary policy.
The US dollar index edged up to 101.13, while the euro slipped slightly to $1.1394, reflecting Europe’s greater dependence on imported energy.
The Japanese yen weakened, with the dollar rising 0.2% to 162.03 yen. Analysts said recent discussions by Japanese officials about encouraging domestic pension funds to increase investments within Japan could eventually support the yen, although such portfolio adjustments are typically implemented gradually.
Focus on Inflation Data and Federal Reserve
Investors are now awaiting key US economic data, particularly June’s Consumer Price Index (CPI), due on Tuesday. The inflation report is expected to provide fresh clues about the direction of prices and the Federal Reserve’s next policy decision.
Attention is also on Federal Reserve Chair Kevin Warsh, who is scheduled to testify before Congress for the first time since assuming the role. His remarks will be closely watched for signals on future interest rate policy, especially as rising oil prices threaten to complicate the inflation outlook.
Gold Retreats as Bond Yields Rise
In commodity markets, higher bond yields reduced demand for non-interest-bearing assets such as gold. As a result, gold prices fell 1.1% to $4,076 per ounce, reversing some of the gains recorded in recent sessions.
Market participants are expected to remain cautious in the coming days as geopolitical developments, inflation data, and corporate earnings continue to shape investor sentiment across global financial markets.
