Asian Markets Slide as Gulf Tensions Drive Oil Surge and Investors Brace for Nvidia Earnings

By Zoey

Asian share markets moved lower on Monday as escalating tensions in the Middle East sent oil prices and global bond yields sharply higher, while investors prepared for a critical week of corporate earnings led by chip giant Nvidia, whose results are expected to test the strength of the global artificial intelligence rally.

Investor sentiment weakened after fresh drone attacks in the Gulf intensified fears of a broader regional conflict and deeper disruptions to global energy supplies. A strike triggered a fire at a nuclear power facility in the United Arab Emirates, while Saudi Arabia said it intercepted three drones entering its airspace, adding to concerns over the security of critical infrastructure across the region.

The latest developments came as U.S. President Donald Trump increased pressure on Iran, warning that Tehran needed to act quickly to secure a diplomatic agreement as tensions continued to escalate.

At the center of market anxiety remains the Strait of Hormuz, one of the world’s most strategically important shipping routes. The waterway, which previously carried roughly one-fifth of global oil trade, has effectively been reduced to minimal shipping traffic as Iran moves to tighten control over access through the corridor.

The disruption has raised fears of a severe global energy shock, with analysts warning that inventories are being depleted at an increasingly rapid pace.

Analysts at Capital Economics said the closure of the strait was accelerating the drawdown of global oil reserves and could push Brent crude prices toward $130 to $140 per barrel by the end of June if the situation continues to deteriorate.

They also warned that a prolonged disruption extending through the end of the year, combined with oil prices holding near $150 per barrel into 2027, could push inflation in Britain and the euro zone close to 10%, forcing central banks to maintain aggressive monetary tightening and potentially triggering a global recession.

Oil markets continued to react strongly to the geopolitical turmoil. Brent crude rose 1.2% to $110.63 a barrel, while U.S. crude climbed 1.0% to $106.42 a barrel as traders priced in growing supply risks and uncertainty over Gulf shipping lanes.

The surge in energy prices has reignited fears that inflation pressures will remain elevated worldwide, putting additional strain on economies already coping with high borrowing costs and slowing growth.

Finance ministers from the Group of Seven nations gathered in Paris on Monday to discuss the implications of the Strait of Hormuz crisis, energy security and critical raw material supplies, even as divisions among Western allies threaten to complicate coordinated responses.

The rise in oil prices and inflation concerns hammered global bond markets last week, sending yields sharply higher as investors reassessed expectations for interest rate cuts.

Yields on U.S. 10-year Treasury notes climbed to 4.584% after surging 23 basis points over the previous week. Thirty-year Treasury yields rose to 5.109% after recording an 18 basis-point increase.

Investors increasingly fear central banks may be forced to abandon expectations for looser monetary policy and instead consider additional tightening measures to prevent another inflation spiral.

Market pricing now suggests there is roughly an even chance the U.S. Federal Reserve could raise interest rates again this year if energy-driven inflation continues to accelerate.

Attention is also focused on the release of minutes from the Federal Reserve’s most recent policy meeting, due Wednesday, which investors hope will provide clues about whether officials are becoming more cautious about easing monetary policy.

Across Asian equity markets, Japan’s Nikkei index fell 0.4%, extending losses after a 2% decline last week from record highs. South Korean stocks dropped 2.1% as investors took profits following a powerful rally fueled by enthusiasm for semiconductor and artificial intelligence companies.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.6%, reflecting broader regional caution as traders balanced concerns over geopolitics, inflation and economic growth.

Chinese markets, which recently climbed to their highest levels in more than four years, also faced pressure ahead of closely watched economic data releases on retail sales and industrial production.

In the United States, futures linked to Wall Street indexes pointed lower ahead of the opening bell. S&P 500 futures fell 0.4%, while Nasdaq futures lost 0.5%.

Although strong corporate earnings have supported equity markets in recent months, analysts warned that the rally remains heavily concentrated among a relatively small number of companies, particularly those linked to artificial intelligence.

Analysts at Citi noted that a significant portion of recent earnings growth had been driven by one-time accounting adjustments, tariff-related add-backs and asset revaluations rather than broad-based operational improvements.

They also highlighted that only a limited group of companies had accounted for most of the earnings upside and positive forward guidance supporting the market’s advance.

According to analysts, broader participation across sectors will likely be necessary for equities to continue climbing meaningfully from current levels, especially if geopolitical tensions remain elevated.

The artificial intelligence sector now faces one of its most important tests this earnings season as investors await results from Nvidia on Wednesday.

Nvidia has become the centerpiece of the AI-driven market rally, with its shares soaring 36% since their March low. The Philadelphia Semiconductor Index has surged more than 60% during the same period as technology companies continue investing heavily in AI infrastructure and advanced computing systems.

Expectations for Nvidia’s earnings are exceptionally high, reflecting the company’s dominant position in supplying chips used for artificial intelligence applications and data center expansion.

Retail earnings will also be closely monitored this week, particularly results from Walmart, which investors see as a key indicator of consumer resilience in the face of rising fuel and energy costs.

Currency markets reflected broader risk aversion, with the U.S. dollar benefiting from demand for safer and more liquid assets. The United States is also viewed as relatively insulated from rising oil prices because it remains a major energy exporter compared with Europe and many Asian economies.

The euro traded near $1.1620 after falling 1.4% last week, while the British pound remained under pressure at $1.3318 following a steep 2.3% weekly decline amid political uncertainty and stress in Britain’s bond market.

The dollar also remained firm against the Japanese yen at 158.64, with traders closely watching the 160 threshold amid concerns Japanese authorities could intervene to support their currency.

Gold prices were little changed at around $4,540 an ounce. Despite the heightened geopolitical tensions and inflation fears, the precious metal has so far struggled to attract sustained safe-haven buying momentum.