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Middle East conflict rattles global markets

Escalating hostilities involving Iran, the US and Israel continued to unsettle investors at the start of the week, with Asian equities extending losses on Tuesday after sharp declines in Europe. Investors were focused on surging oil prices and the closure of the Strait of Hormuz shipping lane. On Wall Street, the main indices finished Monday broadly unchanged despite the geopolitical tensions, as resilient US manufacturing data and persistent inflation concerns kept expectations for imminent Federal Reserve rate cuts in check.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

Oil tanker
© Shutterstock

Most major Asian equity markets declined on Tuesday as escalating tensions involving the US, Israel and Iran weighed on risk sentiment, with South Korea’s KOSPI leading losses after a long weekend and dropping 7.2% on profit-taking in large technology and automotive names. Japanese benchmark Nikkei 225 fell 3.1% as investors digested stronger fourth-quarter capital spending alongside an unexpected rise in the January jobless rate and hawkish comments from the Bank of Japan. Australia’s S&P/ASX 200 was down 1.3%. Hong Kong’s Hang Seng Index lost 1.1%, and mainland China’s CSI 300 fell 1.4%. In other markets, oil prices continued to climb on Tuesday, with Brent crude oil trading just below USD 80 and West Texas Intermediate (WTI) around USD 73 per barrel, as investors focused on potential supply disruptions linked to the conflict in the Middle East after Iran said the Strait of Hormuz shipping lane had been closed. Gold eased 0.4% to around USD 5310 per ounce and silver dropped nearly 7% as investors favoured the US dollar and higher-yielding assets.

Wall Street steady

US equities ended Monday’s session broadly unchanged despite the war, with the Dow Jones Industrial slipping 0.2% to 48,904.78 points, the S&P 500 edging up slightly to 6881.62 and the Nasdaq 100 gaining 0.1% to 24,992.60. The closely watched ISM manufacturing index for February eased less than anticipated and remained in expansion territory at 52.4, but strong price components reignited inflation concerns and tempered hopes for imminent US Federal Reserve rate cuts.

European stocks drop

European equity indices declined on Monday as the war triggered a sharp rise in oil and gas prices and weighed particularly on tourism and automotive shares, while supporting energy and defence stocks. The euro-area benchmark Euro Stoxx 50 dropped 2.4% to 5988.46 points on Monday, while Germany’s DAX fell 2.4% to 24672.40 points, and France’s CAC 40 lost 2.2% to 8394.32 points. Travel and leisure stocks dropped more than 5%, led by nearly 10% losses in Tui and steep falls in airlines including Air France-KLM, IAG and EasyJet. In macroeconomics, eurozone manufacturing activity moved back into expansion in February, with manufacturing PMI rising to 50.8 from 49.5 in January, its highest level in 44 months.

Swiss retail sales edge lower

Swiss retail turnover declined by 1.8% in January compared with the same month a year earlier, according to provisional data from the Federal Statistical Office released on Monday. In real terms, after adjusting for inflation, sales fell by 1.1%, reversing a 2.8% increase recorded in December. The non-food segment saw the sharpest setback with a 2.7% drop. Switzerland’s SMI declined 1.4% to 13815.95 points on Monday, while the franc lost ground versus other major currencies.

Corporate and economic calendar

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: euro-area Consumer Price Index (11:00) and UK Spring Statement (13:30).

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