NEW YORK: Stock futures fell and oil rose after President Donald Trump called for the evacuation of Tehran, in comments that contrasted with earlier optimism that Israel-Iran tensions wouldn’t escalate into a wider conflict.
Gold also climbed following Trump’s comments in a social media post from a Group of Seven leaders’ summit in Alberta. It wasn’t clear what he was referring to but hours earlier, Trump had said Iran wanted to make a deal. The US President is cutting short his G-7 visit, according to the White House, and returning to Washington.
A gauge of Asian stocks was little changed, with Japanese and South Korean shares advancing while equities in Hong Kong and China fell. Risk-on sentiment had returned to Wall Street on Monday (June 16) and pushed the S&P 500 up about one per cent to back above 6,000.
"Equities have generally been resilient on recent Middle East headlines, which shows that the market understands that past instances have generally been contained and short-lived,” said Billy Leung, senior investment strategist at Global X ETFs. "With the exception of gold, there has been no consistency in asset class performance post similar incidents.”
There were mixed signs that investors will keep faith in the US economy, as longer-maturity Treasuries continued to lag the market even after a US$13 billion sale of 20-year bonds drew the expected yield level - a notable improvement from last month’s auction disappointment that spurred a broad selloff. The dollar rose against most Group-of-10 currencies.
Trump earlier said Iran wanted to talk about de-escalating the conflict with Israel even as the two sides exchanged fire for the fourth consecutive day. Asked if the US would get more involved militarily, the US leader said he didn’t want to discuss it.
The outbreak of hostilities between Israel and Iran disrupted the momentum that had driven the S&P 500 back near record levels. While markets initially adopted a cautious, risk-off stance to assess how the conflict might unfold, sentiment improved as investors speculated the attacks were unlikely to draw in more parties.
"Focus will remain on geopolitical headlines, but as long as the conflict stays limited between Israel and Iran, it’s unlikely to materially impact the markets,” said Tom Essaye at The Sevens Report.
WTI crude fell below US$70 late Monday, though rose again Tuesday to around US$73. Middle East producers ship about a fifth of the world’s daily output through the narrow waterway, and prices could soar if Tehran attempts to disrupt shipments through the route.
"Oil prices have spiked due to supply concerns but the effects on Asia should be manageable given a lower oil burden than before and moderate inflation,” Morgan Stanley economists led by Chetan Ahya wrote in a note Monday. "However, if oil prices move even higher to above $85 a barrel and a stronger US dollar is sustained, it may lead to delays in rate cuts.”
Investors in Asia will be keeping an eye on the G-7 gathering in Alberta, Canada, where Trump and Japanese Prime Minister Shigeru Ishiba failed to reach an agreement on a trade package. The outcome leaves the Asian nation inching closer to a possible recession as the pain of US tariffs hits its economy.
Also at the G-7, UK Prime Minister Keir Starmer reached a deal with Trump to implement trading terms disclosed last month to slash US tariffs on key British exports and raise UK quotas on certain American agricultural products.
The Bank of Japan is set to keep rates on hold at its two-day meeting ending Tuesday. The focus is a review of its bond purchase reduction plan, almost a year since it started shrinking its balance sheet, according to Bloomberg Economics.
Wall Street will focus on the Federal Reserve decision Wednesday, with policymakers signaling an extended hold on rates. Investors are looking to Chair Jerome Powell for clues on what might eventually prompt the central bank to make a move, and when.
"He may describe recent inflation developments as encouraging, but also downplay their relevance given uncertainty ahead due to tariffs, fiscal policy, and the recent spike in the oil price due to geopolitical developments,” said David Doyle at Macquarie Group. "On net, the risks to market pricing for 2025 lie in a hawkish direction post the communication.” - Bloomberg
