LONDON, March 5 - Equity markets opened lower in the United States on Thursday after the intensifying conflict involving Iran sent oil prices higher and pushed the dollar up, prompting fresh selling in global government bonds and fueling another round of volatile trading.
Trading remained erratic through the session as investors reacted to a sequence of military and political developments. Asian markets had rallied overnight following a major policy step in Seoul, but that strength did not hold in Europe and U.S. shares resumed their decline when American trading began.
The recent escalation included a wave of missiles launched by Iran at Israel and increased bombing of Tehran. The violence followed a procedural setback in Washington, where Republican Senators blocked a bipartisan effort to stop the U.S. air assault.
U.S. Energy Secretary Chris Wright framed market impacts in narrow terms, saying the effect on energy markets would be a "small price" to pay to achieve military objectives. By contrast, International Monetary Fund head Kristalina Georgieva cautioned that the situation was already testing the global economy's resilience.
Market strategists pointed to three immediate barometers of financial stress: crude oil prices, rising bond yields and a firmer dollar. John Hardy of Saxo Bank said markets appeared to be assuming the conflict would be relatively short-lived and were not prepared for a longer war.
With Brent crude moving toward the mid-$80s, pressure returned to the euro, the pound and benchmark government bonds. Trevor Greetham of Royal London Asset Management noted the persistently high oil price and cited market skepticism about a recent U.S. pledge to insure oil tankers against attacks.
Asian session: dramatic swings and policy intervention
Action in Asian markets was particularly volatile. South Korea's KOSPI index surged nearly 10%, largely undoing most of its record daily fall from the previous day. The rebound followed President Lee Jae Myung's decision to activate a $68 billion market stabilisation fund, which he said was needed to smooth volatility generated by "the escalating crisis in the Middle East".
Japan's Nikkei rose almost 2%, and Chinese equities gained roughly 1% after party leaders in Beijing set an economic growth target in the 4.5% to 5% range for the year, presented as part of broader long-term planning.
Energy channel and shipping disruptions
Energy supply concerns continued to dominate market thinking. Brent crude has risen more than 15% since U.S. and Israeli air strikes on Iran over the preceding weekend, briefly touching $84.25 per barrel and remaining close to $84 as U.S. trading gained traction.
Ship-tracking data indicated that about 300 oil tankers were stalled in the Strait of Hormuz, with traffic through the vital chokepoint effectively halted since the outbreak of war. The prospect of constrained supplies was a key ingredient in the upward pressure on energy prices.
Greetham said surging natural gas prices were causing bond investors to pare back expectations for rate cuts and to consider the possibility of rate increases instead.
Fixed income and currency moves
Yields on benchmark U.S. 10-year Treasury notes, which move inversely to prices, rose by nearly 6 basis points to 4.14% as investors sold into the safe-haven bond market's dislocation. In Europe, the German bund market appeared set for its largest weekly selloff in a year, while traders assigned roughly a 60% probability to an ECB rate hike by December, reflecting shifting expectations for central bank policy.
The dollar resumed its advance after a pause the previous day. The dollar index rose about 0.3%. The euro fell by a similar magnitude, trading near $1.1600, while the yen eased to around 157.20 per dollar.
Traditional safe-haven gold experienced swings as well, trading as high as $5,175 an ounce before pulling back toward $5,100 in active dealings.
Policy watchers and outlook
Several European Central Bank officials, including President Christine Lagarde, were scheduled to speak later in the day, and investors were closely parsing their remarks for guidance on how the conflict might affect policy decisions. Joachim Nagel, president of the German Bundesbank, warned that a protracted war in Iran would lift inflation and impair growth, though he emphasized that it was still premature to draw firm conclusions.
Erik Liem, a strategist at Commerzbank, noted that the recent market dynamics could influence the ECB's March projections, adding that the typical cutoff date for those projections is around two weeks before the central bank meeting.
Overall, market actors entered the day wrestling with the immediate economic consequences of a volatile geopolitical landscape - a combination of higher energy costs, fluctuating risk sentiment and rapidly evolving expectations for interest-rate paths across major central banks.