Global Markets Unsettled by Middle East Tensions, Markets Slip Ahead of Uncertain Week

Shares in Asia slipped to the lowest in six weeks on Monday, tracking a drop in US equities, as markets grappled with simmering tensions in the Middle East, disappointing bank earnings, and the prospect of the Federal Reserve keeping interest rates higher for longer.

Equity benchmarks in Japan, South Korea, and Australia all declined, while Hong Kong stock futures also fell after the S&P 500 suffered its worst session since January on Friday amid a flight to safety.

Global markets showed signs of stability even after the unprecedented attack on Israel over the weekend. Iran said ‘the matter can be deemed concluded,’ and President Joe Biden reportedly told Israeli Prime Minister Benjamin Netanyahu that the US won’t support an Israeli counterattack against Iran.

Most Group-of-10 currencies strengthened against the greenback Monday while Treasures steadied in early Asian trading after yields slipped in the previous session.

Gold rose amid driving demand for haven assets, while aluminum and nickel surged following new US and UK sanctions that banned deliveries of any Russian supplies after midnight on Friday.

In Asia, Chinese equities are set for a tough week after a miss in the nation’s trade data Friday. Even if the global risk mood improves and Middle East tensions subside, Chinese stocks may see headwinds of their own to overcome. Authorities may hold a key interest rate and make liquidity abundant this week when a policy loan matures.

With investors already rattled by sticky inflation and the prospect of higher-for-longer interest rates, the escalation of the Middle East crisis may inject fresh volatility into markets. As the conflict widens, many say oil could surpass $100 a barrel and expect a flight to Treasuries, gold, and the dollar, along with further stock-market losses.

Bitcoin rallied after it sank almost 9% in the wake of the attacks. Stock markets in Saudi Arabia and Qatar posted modest losses under thin trading volumes on Sunday. Israel’s equity benchmark fluctuated between gains and losses at least nine times before closing with a small gain.

Oil mostly shrugged off the attacks, with gains held in check by speculation that the conflict would remain contained. Brent crude is already up almost 20% this year and last traded around $90 a barrel.

As Wall Street’s earnings season kicked off, big banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation. JPMorgan Chase, Wells Fargo, and Citigroup reported mixed earnings results.