Most Asian equity markets moved lower on Monday, held back by elevated crude prices as the conflict in the Middle East extended into its third week with no clear sign of de-escalation. U.S. stock index futures inched higher during Asian hours following a week of losses on Wall Street.
Geopolitical tensions and oil
Market participants continued to weigh the economic consequences of the widening confrontation involving the U.S., Israel and Iran. Oil hovered above $100 a barrel amid ongoing concern that the conflict could disrupt supplies that transit the Gulf. The price rally has been driven in part by attacks on shipping lanes and energy infrastructure near the Strait of Hormuz, a strategic chokepoint through which roughly a fifth of global oil normally flows.
Over the weekend, U.S. President Donald Trump warned of further strikes on Iran's principal oil export facility at Kharg Island and said he was not ready to reach a deal to end the conflict. That escalation kept risk premia in energy markets elevated and heightened investor focus on inflationary pressures tied to crude.
Regional market moves
Japan's Nikkei 225 fell 1.2%, while the broader TOPIX index declined 1%. South Korea's KOSPI slipped 0.5%. In mainland China, the Shanghai Composite lost 1% and the blue-chip Shanghai Shenzhen CSI 300 dipped 0.8%. Hong Kong's Hang Seng was largely muted. Singapore's Straits Times traded broadly flat. Australia's S&P/ASX 200 fell 0.5%, while futures linked to India's Nifty 50 edged up 0.1%.
China data provides some support
Investors also digested official Chinese activity figures published on Monday. Industrial output rose 6.3% year-on-year for the combined January-February period, surpassing expectations and gaining pace from December's 5.2% increase. Retail sales, a key barometer of consumer demand, rose 2.8% from a year earlier, topping forecasts and improving from 0.9% growth in December.
Taken together, those prints signaled a stronger-than-expected start to the year for the world's second-largest economy. Nevertheless, market participants remained cautious given the persistent geopolitical risks and the potential for higher energy costs to feed through into inflation.
Looking ahead
Attention now turns to the Federal Reserve meeting scheduled for March 17-18. Policymakers are widely expected to leave interest rates unchanged as they evaluate the inflationary impact of elevated oil prices and ongoing geopolitical uncertainty.
For now, the region's equity performance appears to reflect a balance between country- and sector-specific data and the broader risk premium associated with supply disruptions in energy markets.