Key Takeaways
- Asian stock markets declined amid concerns over potential semiconductor overcapacity.
- Oil prices are set for a significant weekly increase due to renewed tensions in the Middle East.
- The U.S. launched new strikes against Iran, escalating regional hostilities.
Asian stocks experienced a rocky start on Friday as investors rotated out of semiconductor plays into other sectors such as banking following robust earnings from major lenders. The MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.06%, while the Nikkei slid 2.8%. Nasdaq futures lost 0.7% and S&P 500 futures declined by 0.4%. EUROSTOXX 50 futures were also down 0.5%. South Korean markets remained closed for a holiday.
In an effort to curb volatility, the South Korean government announced it would temporarily ban new listings of exchange-traded funds (ETFs) tied to certain major technology firms and raise minimum required deposits for retail investors investing in such products. Analysts at HSBC noted that Asia’s AI trade thesis is being tested again after a strong rally this year led by semiconductors, with concerns resurfacing about potential overcapacity.
Oil prices surged on Friday, with Brent crude futures up 0.7% to $84.83 per barrel and U.S. crude advancing 0.7% to $79.49 per barrel. The U.S. began conducting a new wave of strikes against Iran on Thursday to further degrade Iranian military capabilities, according to the US Central Command. For the week, Brent and U.S. crude futures were set to rise more than 11% each, marking their largest gains since April.
Thierry Wizman, global FX and rates strategist at Macquarie, stated that 'The US and Iran are further away from seeing eye-to-eye,' with the next few days potentially determining which side has ‘overplayed its hand’ but not without the risk of seeing some oil infrastructure destroyed in the process.
Trade tensions also resurfaced as the U.S. imposed new 25% tariffs on Brazil, adding to global economic uncertainties. In currencies, the dollar held steady and was set to end the week little changed as receding expectations of Federal Reserve rate increases this year were offset by renewed safe-haven demand.
Investors are now pricing in roughly 27 basis points worth of Fed hikes by December following benign U.S. CPI and PPI readings this week. The euro was little changed at $1.1442, while sterling fetched $1.3472. The yen languished near a 40-year low, standing at 162.38 per dollar, prompting renewed jawboning from Japanese Finance Minister Satsuki Katayama to try and support the currency.
Much of the market’s focus has been on potential allocations in response to these developments, with analysts cautioning that it is difficult to time the market given the current geopolitical uncertainties.
