(Bloomberg) — Stocks fell and crude oil rose as an escalation in the Middle East conflict hit markets, prompting investors to trim risk exposure.
Asian shares fell 1.4%, while US equity-index futures dropped 0.6%, paring some of their earlier losses. Some of the steepest moves eased as President Donald Trump told the New York Times that he was open to dropping sanctions on Iran if its new leader was “pragmatic.” Iran also made a fresh push to resume talks with the US, the Wall Street Journal reported.
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“Those headlines seem to have been helpful in steadying sentiment,” said Andrew Ticehurst, a senior strategist at Nomura Australia Ltd. in Sydney. “The Iran situation is key for now. Markets will look for clues regarding the likely length and severity of future military action, especially the Iranian response.”
Moves were similar in oil too, where an initial knee-jerk reaction saw Brent surge as much as 13%. The commodity pared those gains to trade at $76.21 a barrel, up only 4.6%. Traders were focused on the status of the Strait of Hormuz — which is effectively closed now — as the water body is crucial for the flow of oil to the rest of the world.
As investors pared risk, some haven assets got a bid. Gold rose 1% to around $5,335 an ounce, easing from session highs. The dollar pared its advance, while Treasuries gave up earlier gains.
Shaken by fresh anxieties over artificial intelligence and potential cracks in credit, all while trading at historically high valuations, stock markets must now contend with the spiraling military action in Iran and the broader region that threatens to destabilize global shipping and limit travel. The impact on oil and inflation is of paramount concern in markets that last month saw US stocks post their worst drop since April.
“I’m not dismissing the possibility of further escalation, but I think the market is more likely to unwind the previous overreaction and adopt a wait-and-see stance,” said Dilin Wu, a strategist at Pepperstone. “While Iran has mounted some resistance, its capacity is clearly limited, and negotiation may well be the more viable path.”
Monday’s decline in Asian stocks, the biggest in a month, came after the region’s equities advanced December through February. Asian shares have outpaced the US and European benchmarks, where concerns about artificial intelligence spending and its destructive impact on sectors has roiled markets.
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