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On Wednesday, Asian stocks fell sharply as markets digested the impact of Iran’s missile strike on Israel. Fears of an escalating conflict rippled across global markets, prompting traders to reduce risk exposure and seek safety in assets like gold, U.S. Treasuries, and the U.S. dollar.
Japan’s Nikkei dropped by 0.56% in early trading, reflecting the broader sell-off, while South Korea’s KOSPI fell 1.3%.
Picture: Japan’s Nikkei takes a hit with rising tensions in Israel-Iran escalations, as seen on the VT Markets app.
Australia’s benchmark was more stable but still lost 0.3%. Across the region, MSCI’s broad index of Asia-Pacific shares fell by 0.5%, as traders absorbed the implications of a potential conflict in the Middle East.
With Hong Kong markets closed on Tuesday and mainland China on holiday for the week, volumes were lower, but the pressure on shares was clear.
U.S. stock futures also reflected this cautious mood, with the S&P 500 futures falling 0.16% after the cash index dropped 0.9% in the previous session.
Crude oil, a key barometer for market sentiment during geopolitical instability, surged. Brent crude rose over 1% to $74.33 per barrel, extending the 2.5% rally from Tuesday.
U.S. WTI crude also gained 1.3%, climbing to $70.73 per barrel.
Gold’s safe-haven appeal remains strong, easing slightly by 0.16% to $2,658.63 per ounce. It had reached close to last month’s record high of $2,685.42 in the previous session, jumping over 1%.
The proximity to all-time highs signals that traders are seeking shelter amidst the growing uncertainty. Any escalation in rhetoric or action between Israel and Iran could drive gold higher.
In the currency markets, the U.S. dollar continued to hold its ground, bolstered by geopolitical risk and a resilient U.S. economy. The dollar index stayed at 101.21 after peaking at 101.39 on Tuesday, the strongest since mid-September.
Meanwhile, the euro remained weak, trading around $1.1070, following a 0.6% drop the previous day. This came as inflation in the eurozone dropped below the European Central Bank’s target, increasing the likelihood of a rate cut on 17 October.
You might be interested in: Dollar Firms as Traders Assess Federal Reserve’s Rate Path
In contrast, the U.S. economy continues to show resilience. Job openings unexpectedly increased in August, although hiring numbers remained soft.
This may argue for a smaller Federal Reserve interest-rate cut in November, especially after Fed Chair Jerome Powell pushed back against expectations of a larger 50 basis point cut.
Traders will closely watch private payroll data due later on Wednesday and the upcoming non-farm payrolls report on Friday for further insight into the U.S. labour market.
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