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Stocks in Tokyo and Seoul tumble as Middle East tensions escalate further

Asian stock exchanges started the new week on a weak note experiencing sharp drops in Tokyo and Seoul, as mounting fears over an escalation of the US-Israel war on Iran, following US President Trump’s 48-hour ultimatum to Tehran over the Strait of Hormuz on Saturday On Wall Street all three major US indices moved below their 200-day moving averages for the first time since spring 2025. This week, markets will likely focus on how businesses and consumers are digesting higher energy prices and heightened geopolitical risks, with a raft of sentiment and activity indicators due from major economies. 

  • Date
  • Author Alessandro Fezzi, Content & Publications
  • Reading time 5 minutes

Strategist Middle East

Asia-Pacific equity markets fell sharply on Monday as escalating US-Iran tensions over the Strait of Hormuz prompted a broad risk-off move, with Japan’s Nikkei 225 dropping nearly 5% and South Korea’s Kospi plunging more than 6%. The sell-off followed comments on Saturday from US President Donald Trump that he would “obliterate” Iran’s power plants if Tehran did not fully reopen the key shipping chokepoint within 48 hours, and retaliatory threats from Iranian officials to target energy and desalination infrastructure across the Gulf. Brent crude prices were volatile on Monday. The spread between Brent and WTI exceeded USD 14 per barrel in what some analysts described as a signal of peak stress in the oil shock.

US equities fall on Iran war fears

US stock markets extended losses on Friday as worries about a further escalation of the Iran conflict and reports of additional US troop deployments weighed on risk appetite. The Dow Jones Industrial fell 1% to 45,577.47 points, leaving it more than 2% lower for the week, marking a fourth consecutive weekly decline and taking its drop since its February record to almost 10%, while the S&P 500 and Nasdaq 100 lost 1.5% and 1.9%, respectively. The technical backdrop deteriorated as all three major US indices moved below their 200-day moving averages for the first time since spring 2025, when then-president Donald Trump’s tariff policies unsettled markets. The decline in US Treasury bonds accelerated as investors priced in a rising probability of a rate hike by the Federal Reserve by October. The price of gold also continued its recent slide, hitting a low not seen since early February.

This week in the spotlight

The week kicks off with euro area consumer confidence, which offers an early read on how the recent rise in energy costs is shaping spending intentions and broader sentiment. On Tuesday, Purchasing Managers’ Indices for France, Germany, the euro area, the United Kingdom and the United States are released, providing a timely gauge of whether higher input prices are starting to weigh on manufacturing and services activity, while US ADP employment data will shed light on the resilience of growth following the Federal Reserve’s decision to pause its tightening cycle. In the euro area, the German ifo business climate index will give further insight into how companies view the growth outlook amid elevated costs and renewed geopolitical tensions. On Thursday, US weekly jobless claims remain a closely watched high‑frequency indicator of labour market conditions. The week concludes with UK retail sales for February, which will help clarify how British consumers are responding to persistent cost‑of‑living pressures and higher borrowing costs, with potential implications for the Bank of England’s policy stance.

Federal Reserve wary of Iran war inflation risks

Fed Governor Christopher Waller said in a television interview on Friday that the inflation risk from the escalating war between the United States, Israel and Iran and the resulting jump in energy prices led him to back keeping US interest rates unchanged this week instead of supporting a cut. Waller said policymakers are monitoring whether higher oil prices prove sustained and begin to feed into underlying inflation, while he would favour resuming rate cuts later this year if the labour market remains weak and energy pressures ease. Fed Vice Chair for Supervision Michelle Bowman said in a separate interview on Friday that it is too early to gauge the conflict’s long-term impact on US growth and inflation, although she remains concerned about a softening jobs market and has pencilled in three rate reductions before the end of 2026. While the Fed’s latest projections still show one rate cut this year, traders in short-term interest-rate markets have shifted to pricing a growing likelihood of a hike in December as analysts warn that a prolonged disruption to Middle East oil supplies keeping crude near USD 80 to USD 100 per barrel could lift inflation, slow growth and complicate the central bank’s efforts to meet both its employment and price-stability goals.

ECB signals readiness to tighten policy

European Central Bank (ECB) policymakers indicated on Friday that they could consider an interest rate increase as soon as April if the recent surge in oil prices linked to the Iran war leads to a sustained rise in inflation pressures. Bundesbank President Joachim Nagel said that medium-term inflation prospects could worsen, and inflation expectations might become persistently higher, which would likely require a more restrictive monetary stance. ECB President Christine Lagarde warned after Thursday’s rate decision that the Middle East conflict had made the outlook significantly more uncertain by threatening to stoke inflation and weigh on growth, while Governing Council member Martins Kazaks said the ECB would closely monitor developments and discuss any necessary measures at upcoming meetings, including in April.

European stock markets fell further on Friday on Middle East tensions. The euro area blue-chip index EuroStoxx 50 dropped 2% to 5501.28 points, moving close to its November low, while Switzerland’s SMI declined 1.1% to 12,320.99 points. 

Corporate and economic calendar

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

Economic data in focus: Bank of Japan monthly report (12:00), US Chicago Fed National Activity (13:30), US Construction Spending (15:00), euro-area consumer confidence (16:00), Australian Purchasing Managers’ Index (23:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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