Asian stocks mostly gained today, recovering after Wall Street felt the impact of growing tensions in the Middle East. Concerns over the conflict weighed on U.S. markets, but Asian markets showed signs of resilience.
Asian stock markets showed mostly positive results on Friday, despite heightened tensions in the Middle East pulling down Wall Street and pushing oil prices higher. Japan's Nikkei 225 index increased slightly by 0.2%, closing at 38,635.62, while South Korea's Kospi climbed 0.4% to 2,570.97, and Hong Kong’s Hang Seng surged by 2.1% to 22,568.48. Australia’s S&P/ASX 200, however, fell by 0.7% to 8,150.00. Shanghai’s market was closed due to a public holiday.
In the foreign exchange market, the U.S. dollar weakened against the Japanese yen, moving from 146.83 yen to 146.11 yen, while the euro inched up marginally to $1.1035 from $1.1034.
Japan's new Prime Minister, Shigeru Ishiba, took office on Tuesday and delivered a policy speech outlining his economic strategies. He pledged wage increases that would outpace inflation and announced an economic aid package designed to assist lower-income families. He also emphasized boosting investment to foster a "cycle of growth and distribution."
Japan’s central bank, the Bank of Japan, has cautiously begun raising its key interest rate from near zero to 0.25%. However, after initial expectations of further rate hikes following Ishiba's election, recent signals from officials have suggested that no additional increases are planned for now. This led to a slight depreciation of the yen against the U.S. dollar. While a weaker yen can benefit major Japanese exporters like Nintendo and Toyota by increasing the value of overseas earnings, it simultaneously increases the costs of imported goods, such as oil, which could hurt consumer spending.
In the U.S., Wall Street experienced a downturn on Wednesday as escalating oil prices added pressure on the markets. The S&P 500 slipped by 0.2% to 5,699.94, the Dow Jones Industrial Average dropped 0.4% to 42,011.59, and the Nasdaq remained nearly flat, edging down less than 0.1% to 17,918.48.
Oil prices saw notable fluctuations, with benchmark U.S. crude losing 2 cents, settling at $73.69 per barrel. Brent crude, the global oil benchmark, also fell by 2 cents to $77.60 a barrel after a sharp 5% rise on Thursday, marking its highest weekly increase in nearly two years. This rise followed U.S. President Joe Biden’s remarks hinting at potential discussions between the U.S. and Israel regarding a possible Israeli strike on Iran’s oil facilities in response to an Iranian missile attack. Although Biden stopped short of confirming any immediate retaliation, the possibility has sent oil markets into flux.
Iran, being a major oil producer, plays a crucial role in supplying crude to China and neighbouring nations. An escalation in hostilities could disrupt these flows, potentially causing further volatility in oil markets. However, for now, oil inventories remain sufficient, which has helped keep prices somewhat in check.
In the U.S., recent economic data showed the real estate, healthcare, and other services sectors growing at their fastest pace since February 2023. Meanwhile, the labour market remained stable, with only a small increase in jobless claims, reflecting historically low layoff numbers.Beyond concerns about the Middle East, Wall Street has been grappling with whether the U.S. job market will remain resilient after the Federal Reserve's decision to maintain interest rates at their highest level in 20 years. Investors are cautiously optimistic that the U.S. economy will continue to grow, supported by recent interest rate cuts by the Federal Reserve, with further reductions expected into the next year.
