By Ankur Banerjee
SINGAPORE, April 2 (Reuters) – Markets recoiled on Thursday as war jitters over Iran deepened, with stocks sliding, oil surging well over $100 per barrel and the dollar firming after U.S. President Donald Trump dashed hopes for clarity on when the Middle East conflict might end.
Trump said in a prime-time address that the U.S. would hit Iran “extremely hard” within weeks, arguing that key military objectives were close to being met and the conflict nearing an end. He set no timeline for an exit, however, keeping investors guessing about the scope and duration of the campaign.
The front-month Brent contract for June jumped over 6% to $107.69 per barrel as investors found little reassurance in the speech, which failed to spell out when or how the Strait of Hormuz – a critical fuel shipping route – would reopen to ease supply disruptions hitting Asia hard.
“We have no additional certainty or clarity around timeline from this address and this is what the market was looking for,” said Jon Withaar, senior portfolio manager at Pictet Asset Management in Singapore.
“The fact that we can expect 2-3 more weeks of action, boots on the ground were not ruled out and that threats to hit infrastructure were reiterated will put the market back on the defensive, particularly as we come into the long weekend.”
U.S. stock futures slid 1.3% while European futures sank over 2%. Asian stocks were clobbered, with Japan’s Nikkei down 2.4% and South Korea’s Kospi index sliding 4.7%.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down over 2%, with almost all regional bourses in the red.
FADING CEASEFIRE HOPES, RISING STAGFLATION RISKS
The prospect of the end to the month-long U.S.-Israeli war with Iran lifted global stocks and knocked the dollar off its recent highs in the past two sessions after a brutal March where soaring oil prices sent risk assets into a tailspin.
In the immediate aftermath of the speech, however, investors were back to selling almost everything except the U.S. dollar and sending oil prices higher.
The risk-off mood looks set to deepen ahead of the long weekend, with many global markets shut on Friday. Investors are likely to cut exposure quickly, wary that any prolonged disruption to shipping through the Strait of Hormuz would deliver a sharp blow to global growth.
“The only thing that really matters is whether the Strait of Hormuz will open soon. Trump’s speech doesn’t imply this is likely to happen as quickly as the markets were expecting,” said Prashant Newnaha, senior rates strategist at TD Securities.
Trump said the United States does not need the key oil gateway and that it will open naturally once the conflict is over.
Iran has fired repeatedly on Gulf countries, some of which are home to U.S. bases, and is using the strait as leverage.
“His comments on the duration of other wars was notable, in that even if the war with Iran lasts a few months, it’s not as long as prior wars,” said Newnaha.
“Expect USD and oil to move higher while risk is shed.”
Trump’s comments also rekindled concerns over stagflation, the toxic mix of high inflation and weak growth that roiled markets in March.
Treasury yields jerked higher in Asia on fears the rising inflation would close the door to any prospect of easier monetary policy. Yields on 10-year notes climbed 5 basis points to 4.376%.[US/]
The bond market selloff is likely to continue in Europe with Germany’s bund futures and French OAT futures also pointing lower.
The U.S. dollar has been the haven of choice among investors during the tumult and the greenback rose against most currencies following the speech. The euro weakened 0.5% to $1.1533.
The dollar index, which measures the U.S. currency against six other units, was 0.5% higher at 100.05 after dropping nearly 1% in the past two days on optimism of an end to the war soon.
(Reporting by Ankur Banerjee in Singapore; Editing by Stephen Coates, Lincoln Feast and Shri Navaratnam)
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