BY COMFORT OGBONNA
Asian stocks and oil prices declined sharply on Tuesday as investors reacted to the United States granting a sanctions waiver for Iran, while also reassessing the likelihood of more aggressive interest rate hikes from the Federal Reserve later this year.
Broader risk sentiment weakened across global markets, with MSCI’s index of Asia-Pacific shares excluding Japan falling 2.9%. Futures tied to the S&P 500 also slipped 0.9%, signaling continued pressure on Wall Street following overnight losses in U.S. equities.
In Asia, Japan’s Nikkei 225 dropped 3%, while South Korea’s Kospi index tumbled 8.1%, marking one of the steepest regional declines. The sell-off reflected growing investor caution amid uncertainty over monetary policy direction and shifting geopolitical developments.
Market participants pointed to a broad rotation away from risk assets, particularly technology and AI-linked stocks, toward more defensive sectors. Analysts noted that investors are increasingly prioritizing companies with stable earnings and predictable cash flows as volatility rises.
European markets also reflected the weaker global tone, with Euro Stoxx 50 futures down 0.96%, German DAX futures falling 1%, and FTSE futures declining 0.95% in early trading.
On Wall Street, equities ended lower in the previous session. The S&P 500 slipped 0.4%, while the Nasdaq Composite fell 1.3%, weighed down by losses in major technology stocks, including Alphabet and other large-cap names.
Energy markets also came under pressure. Oil prices dropped more than 3% in the previous session and continued to weaken, with Brent crude sliding 1.22% to $76.95 per barrel. The decline followed news that the U.S. had eased sanctions on Iran and comments suggesting progress in diplomatic talks, which reduced fears of supply disruptions through the Strait of Hormuz.
U.S. Vice President JD Vance said progress in negotiations with Iran had helped stabilize the situation and that the strategic waterway remained open, further easing supply concerns and contributing to the decline in crude prices.
Currency markets showed continued volatility, particularly in Japan. The Japanese yen traded flat at 161.665 per dollar, hovering near its weakest level in four decades after a turbulent trading session. The currency remains under pressure from wide interest rate differentials between the United States and Japan, which continue to favor the dollar.
Japanese Finance Minister Satsuki Katayama said she had held discussions with U.S. Treasury Secretary Scott Bessent to address recent fluctuations in global financial markets. The talks come amid increasing concern from policymakers about the rapid depreciation of the yen and its potential economic impact.
The British pound slipped 0.1% to $1.3234 following political developments in the United Kingdom. Prime Minister Keir Starmer announced plans to resign, setting the stage for an expected orderly leadership transition to frontrunner Andy Burnham. Markets appeared relatively calm, suggesting investors are not anticipating major policy disruptions.
The U.S. dollar remained broadly strong, with the dollar index rising 0.07% to 101.08, its highest level since May 2025. Strength in the greenback has been supported by rising Treasury yields and growing expectations that the Federal Reserve may adopt a more aggressive policy stance.
Interest rate expectations shifted significantly in recent sessions, with traders pricing in a 54% probability of at least two 25-basis-point rate hikes before the end of the year, according to CME Group’s FedWatch tool. This marks a sharp increase from just over 15% a week earlier, reflecting rapidly changing sentiment around U.S. monetary policy.
The yield on the 10-year U.S. Treasury note eased slightly to 4.501%, while short-term yields remain elevated, underscoring market expectations of tighter financial conditions.
Safe-haven assets also weakened. Gold prices fell 1.75% to $4,118.55 per ounce as investors moved away from defensive positions. In cryptocurrency markets, Bitcoin dropped 1.56% to $63,368.73, while Ether declined 1.17% to $1,712.74, reflecting broader risk-off sentiment across digital assets.
Overall, markets remain driven by a combination of geopolitical developments in the Middle East and shifting expectations for U.S. monetary policy. With uncertainty persisting on both fronts, volatility is expected to remain elevated across equities, currencies, commodities, and digital assets.