Asian markets opened under pressure on Thursday, following a broad retreat on Wall Street triggered by hotter-than-expected U.S. inflation data and a resumption of U.S. military strikes on Iran that lifted crude prices.
MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.9%, with South Korea’s KOSPI tumbling about 3% and S&P 500 e-mini futures trading roughly 0.3% lower. The re-emergence of military action came after the U.S. military said it had launched fresh strikes on multiple targets in Iran, hours after President Donald Trump vowed additional attacks if no peace deal is reached. Iran said it had closed the Strait of Hormuz in response.
Oil moved higher as trading resumed in Asia: Brent crude climbed about 2% to $94.93 a barrel. Strategists noted that the recent rally across pockets of Asian markets, particularly in technology-heavy segments, left some stocks vulnerable to pullbacks as investors reassess very high earnings growth expectations that had supported recent gains.
"Given already stretched valuations, these extreme bullish expectations set a vulnerable backdrop for momentum in Korea, Taiwan and the Asia tech sector," Rupal Agarwal, an Asia quant strategist at Bernstein in Singapore, said in a client note. She recommended trimming positions in those areas and warned that renewed escalation on the war front could accelerate any unwind.
On Wall Street on Wednesday, the S&P 500 closed down 1.6% and the Nasdaq Composite fell 2.0% after data showed U.S. inflation accelerated last month at the fastest pace since April 2023, though the reading was in line with market expectations. Benchmark Brent had settled at $93.10 a barrel on that session, up $1.65 or 1.8%, as geopolitical tensions and the prospect of more strikes on Iran weighed on sentiment.
The U.S. dollar index, which tracks the greenback against a basket of six major currencies, held steady at 100.03, remaining in the tight trading range seen over the prior week. Safe-haven demand has been supporting the dollar amid the U.S.-Iran negotiations and recent military activity.
Market pricing for the timing of the next Federal Reserve rate move shifted slightly. Fed funds futures showed an implied 51.6% probability that the Fed’s next hike would occur at its two-day meeting beginning October 28, up from a 50.1% chance a day earlier that policymakers would keep rates on hold until December, according to the CME Group’s FedWatch tool. The yield on the U.S. 10-year Treasury rose 2.6 basis points to 4.564%.
In digital assets, bitcoin eased 0.5% to $61,445.19 and ether was down 0.6% at $1,619.04, with part of the movement attributed to a rotation out of cryptocurrencies and other speculative assets ahead of the upcoming SpaceX IPO. Precious metals were softer: gold slipped about 0.3% to $4,059.59.
Across markets, investors weighed geopolitical developments alongside macroeconomic signals. The combination of renewed conflict-related risk and confirmed acceleration in U.S. inflation has encouraged some de-risking, particularly in assets and sectors that had benefited from very elevated growth expectations in recent months.
What to watch next
- Further market reactions to any additional U.S.-Iran military activity.
- Moves in oil prices and the potential impact on energy and broader markets.
- Shifts in Fed rate-hike expectations as reflected in futures pricing and Treasury yields.