Key Takeaways:
US and Iranian forces exchanged fire for an eighth consecutive night, pushing Brent crude above $91 a barrel and deepening a risk-off rout across Asian markets.
US airstrikes on Iran's Qeshm Island and Iranian attacks on Kuwaiti infrastructure pushed Brent crude above $91 a barrel Monday, the highest since June, as the conflict entered its eighth consecutive night. WTI climbed about 2.3% to $84.41.
"The escalation in the Middle East will be keenly felt in Asian markets today," said Kyle Rodda, senior analyst at Capital.com. Oil price increases threaten "economic activity in regions heavily dependent on energy imports," he said, while semiconductor declines are "triggering a broad-based deleveraging across global markets."
South Korea's KOSPI opened down more than 4% before paring losses to less than 1%. The MSCI Asia Pacific index has fallen over 9% from its June peak, approaching a technical correction. The dollar held steady against most major peers, with the euro at $1.1430 and the yen at 162.50. Australia's S&P/ASX 200 rose 0.3%, bucking the regional trend.
The Strait of Hormuz, through which about one-fifth of the world's oil and liquefied natural gas passes, remains effectively closed after Iran's declaration — a disruption that last occurred in 2019 following attacks on Saudi Aramco facilities, when Brent surged 15% in a single day. With crude up more than 20% this month, inflation expectations are reigniting, and markets are pricing a growing probability that the Federal Reserve will deliver a rate hike in September or October.
The latest escalation followed the deaths of two US service members in Jordan from an Iranian missile and drone attack, pushing the American military death toll in the conflict to 16, according to US Central Command. President Donald Trump ordered fresh airstrikes Saturday night targeting Islamic Revolutionary Guard Corps positions. Iran's Supreme Leader Mojtaba Khamenei accused Washington of violating the June ceasefire, warning that Tehran had "unforgettable lessons" in store.
Jordan's military said it intercepted 10 Iranian missiles that entered its airspace, highlighting the risk of the conflict spilling into neighboring countries. Kuwait reported damage to a power and desalination facility from an Iranian strike.
Tech rout compounds the selloff
The geopolitical shock landed on markets already reeling from a technology-driven selloff. The Philadelphia Semiconductor Index entered a bear market Friday, and Nasdaq 100 futures edged up just 0.1% Monday — a tentative rebound that did little to reassure investors. The last time the semiconductor benchmark entered a correction of this magnitude was in 2022, when the Fed's tightening cycle triggered a 35% peak-to-trough decline over eight months.
"Asia's risk backdrop continues to deteriorate," said Wee Khoon Chong, macro strategist at BNY in Hong Kong. "Tech corrections, a stronger dollar, higher oil prices and persistent geopolitical tensions all point toward a more defensive positioning."
Inflation fears resurface
Oil's rally has reignited inflation concerns that had been receding. Crude is up more than 20% in July alone, threatening to push headline inflation higher just as Fed Chair Kevin Walsh has made price stability the central bank's explicit priority. Markets now await July PMI data due this week for clues on whether the US economy's resilience can sustain the case for tightening.
"If July PMI data further confirms the relative strength of the US economy, the dollar could gain upward momentum this week," said Elias Haddad, global markets strategy head at Brown Brothers Harriman.
Gold fell below $4,000, extending last week's decline, as higher oil prices reinforced expectations that interest rates will stay elevated for longer, diminishing the precious metal's appeal as a haven. Silver and platinum also declined.
This article is for informational purposes only and does not constitute investment advice.
