BY COMFORT OGBONNA
Asian stock markets declined on Monday as escalating tensions in the Gulf region pushed oil prices higher, renewed concerns about global inflation, and increased expectations that major central banks could keep interest rates elevated for longer.
Investor sentiment weakened after Iran claimed it had closed the strategically important Strait of Hormuz following intensified fighting in the Middle East. The development raised concerns about possible disruptions to one of the world’s most important energy shipping routes, triggering a sharp increase in crude oil prices and putting pressure on risk-sensitive assets.
The rise in energy prices also boosted demand for the U.S. dollar and pushed government bond yields higher as traders increased their expectations that the Federal Reserve may need to raise interest rates further to contain inflation.
The market reaction came ahead of Federal Reserve Chair Kevin Warsh’s first appearance before Congress in his new role, with investors watching closely for signals about the central bank’s future policy direction.
Economic data scheduled for release this week will also be closely monitored. U.S. inflation figures for June are expected to provide insight into whether price pressures are continuing to ease. Although lower gasoline prices had recently helped slow inflation, the renewed surge in oil prices could reverse some of that progress in the months ahead.
Brent crude futures climbed 3.3% in early trading to $78.50 a barrel, recovering from a recent low of $70.14. U.S. crude prices also increased 3.4% to $73.83 a barrel as traders assessed the potential impact of rising tensions on global energy supplies.
U.S. officials said approximately 20 vessels had been escorted through the Strait of Hormuz during the previous 24 hours, but shipping tracking data showed limited movement through the key waterway, keeping concerns about possible disruptions alive.
Stock investors are now looking ahead to the upcoming corporate earnings season, hoping strong results from major companies will help offset geopolitical uncertainty. Large U.S. banks are scheduled to begin reporting results from Tuesday, followed by major companies including Netflix and General Electric.
Analysts at Citi said technology stocks remain among their preferred areas of investment, supported by strong earnings growth expectations and attractive valuations. They noted that while volatility linked to artificial intelligence companies could remain high in the coming months, they continue to favor global technology stocks and U.S. equities.
The analysts also recommended maintaining exposure to economically sensitive sectors and regions, including Japan, financial companies, and materials firms, as investors balance growth opportunities with ongoing market risks.
Early trading indicated continued caution among investors. Futures linked to the S&P 500 fell 0.3%, while Nasdaq futures declined 0.5%. Japan’s Nikkei index dropped 1%, adding to losses after falling 1.7% the previous week. MSCI’s broadest index of Asia-Pacific shares outside Japan also slipped 0.2%.
South Korea’s stock market, which has recently been closely watched as an indicator for the global semiconductor industry, declined 0.4%. The market had already experienced significant pressure after losing nearly 8% the previous week as heavily leveraged bets on chip companies came under strain.
The semiconductor sector remains in focus following the strong U.S. market debut of South Korean chipmaker SK Hynix. The company’s U.S.-listed shares surged nearly 14% during their first day of trading on the Nasdaq, highlighting continued investor enthusiasm for artificial intelligence-related technology.
However, analysts warned that further weakness in semiconductor stocks could have broader effects across global markets because chip companies have become central to the current artificial intelligence investment cycle.
The increase in oil prices also affected bond markets. The yield on 10-year U.S. Treasury notes rose two basis points to 4.59%, while futures linked to Federal Reserve policy showed a slight decline, suggesting markets were pricing in additional monetary tightening by the end of the year.
The U.S. dollar index remained firm at 101.12 as investors sought safety amid geopolitical uncertainty. The euro weakened slightly to $1.1403, partly because Europe relies more heavily on imported energy supplies compared with the United States.
Against the Japanese yen, the dollar gained 0.1% to 161.96 yen, recovering some of the losses recorded on Friday after Japanese Finance Minister Satsuki Katayama discussed possible measures encouraging Japan’s $1.8 trillion Government Pension Investment Fund and other retirement funds to increase domestic investments.
Global markets are now facing a combination of challenges, including renewed geopolitical risks, uncertain inflation trends, and questions about the future path of interest rates. Investors are expected to closely monitor oil price movements, economic data, central bank comments, and corporate earnings reports as they assess the outlook for the remainder of the year.
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