Emerging market stocks experienced a decline for the third session in a row, marking their longest streak of losses in nearly two months. This downturn was primarily driven by increasing tensions in the Middle East, which pushed investors towards safer assets, and ongoing uncertainty surrounding global interest rate outlooks. This comes after President Donald Trump rejected Iran’s latest proposal to reopen the Strait of Hormuz, escalating geopolitical concerns.
Oil prices reacted to these developments, with Brent crude climbing 1.6% to approximately $106 a barrel. This increase was attributed to Iran's unwavering stance on its seven-day proposal for reopening the vital waterway. The rise in oil prices further intensified inflation concerns, prompting expectations of continued interest rate hikes by central banks, including the Federal Reserve.
The broader market saw MSCI’s index of Asian stocks slip 0.5%. Specifically, benchmark equity gauges in mainland China and South Korea dropped by more than 2%. Futures for the Nasdaq 100 Index also fell 0.6%, while the S&P 500 Index futures declined 0.2%. Gold, a traditional safe-haven asset, dropped 1.8% to about $4,212 an ounce, as elevated energy costs sustained pressure on central banks to combat inflation through rate increases. The yield on 10-year Treasuries advanced four basis points to 5.20%.
This market volatility is exacerbated by the fact that oil remains a crucial market driver. Elevated energy costs are contributing to inflationary pressures and strengthening the case for further rate increases. Last week, the average yield on global bonds surpassed 4% for the first time since 2007, raising concerns that higher borrowing costs could negatively impact the economy and corporate earnings. Analysts, such as Naoki Fujiwara, senior fund manager at Shinkin Asset Management, noted that the Middle East situation and rising bond yields are significant sources of anxiety for investors. Meanwhile, in tariff-related news, the US released details of a plan to slash tariffs on roughly $30 billion of imported goods on each side following a summit between Trump and Xi Jinping.
