Asian stocks slide, oil rises as Iran and US launch strikes

SINGAPORE: Asian stocks tumbled, and oil prices rose as Iran and the U.S. engaged in ​their biggest exchange of hostilities since a ceasefire was agreed in April, with the markets also focused on upcoming U.S. inflation data that ‌could influence the rates outlook.

Iran's Revolutionary Guards said they had carried out attacks against a U.S. base in Jordan and 21 other targets in the Gulf on Wednesday in retaliation for American strikes around the Strait of Hormuz, Iranian media reported.

The U.S. military said on X it had targeted Iranian air defence, ground control stations and surveillance radar sites near the strait in response to what U.S. President ​Donald Trump said was the downing of a U.S. Apache helicopter on Tuesday.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped about 3%. Japan's Nikkei fell ​2% while the tech-heavy South Korean KOSPI slumped nearly 7% in a volatile week where AI stocks have come under pressure.

European ⁠futures were flat and set for a muted open as investors await clarity on the fallout from the attacks.

Oil prices reacted more mildly, though they did move away from ​seven-week lows touched in the previous session. Brent futures rose 0.7% to $92.08 a barrel, while U.S. West Texas Intermediate WTI crude climbed 0.6% to $88.73.

"Geopolitics is being treated as a ​headline risk, not a macro shock for now," said Charu Chanana, chief investment strategist at Saxo in Singapore.

"Oil holding around $90 despite fresh Iran headlines suggests markets are not pricing a sustained supply disruption. That leaves room for a bigger repricing if energy infrastructure, shipping routes or U.S. involvement escalate."

U.S. stocks slid overnight as a tech rebound fizzled, with AI valuation worries, Middle East tensions and rising rate ​hike bets driving investors from risk. Futures for the S&P 500 were down 0.5% while Nasdaq futures slid 0.86%.

Inflation Test Awaits

Investors will be looking at U.S. inflation data later ​on Wednesday to gauge the impact of the war. A Reuters survey of economists predicts inflation likely increased 4.2% in the 12 months through May in what would be the largest annual ‌rise since April ⁠2023.

A stronger-than-expected jobs report on Friday increased bets that the Federal Reserve will hike interest rates this year. Traders have now fully priced in a 25-basis-point hike in December versus expectations of two rate cuts before the war.

"If CPI today is hot, it will be much harder for the Fed to sound relaxed next week," said Saxo's Chanana. "The Fed probably cannot hike aggressively into a pure supply shock, but it also cannot ignore inflation expectations if oil keeps rising."

The euro was at $1.1548 while sterling fetched $1.3380 as the U.S. ​dollar held firm. The yen changed hands ​at 160.36 per dollar, staying near the ⁠160 level widely seen as a line in the sand for potential official intervention.

Japan's wholesale inflation accelerated in May at the fastest pace in three years as price pressures from the war broadened, data showed on Wednesday, adding to the case for further ​interest rate hikes by the Bank of Japan.

A rate hike from the BOJ at the June 16 policy meeting is now ​almost fully priced in, ⁠with analysts saying persistent weakness in the yen and a hawkish shift from the Fed could compel the BOJ to accelerate its own rate hikes.

"The market can usually absorb geopolitical noise rather well when energy prices stay contained," said Anthony Saglimbene, chief market strategist at Ameriprise.

"It has less room for comfort when oil prices, inflation data, and Fed policy all lean in a ⁠direction that ​becomes less supportive of stocks over the near term. This is the risk we see building in ​the market right now."

That risk is being felt in emerging markets where Bank Indonesia on Wednesday increased interest rates in a surprise off-cycle meeting to prop up the fragile rupiah just weeks after it surprised markets ​with a jumbo hike.

Gold prices slid to an 11-week low and last fetched $4,174.20, down 2% on the day.