TOKYO: Global stock markets dived on Friday and oil prices surged after Israel conducted a military strike on Iran, rattling investors and sparking a shift towards safe havens such as gold and the Swiss franc.
The escalation in hostilities in the Middle East - a major oil-producing region - adds a fresh layer of uncertainty for financial markets at a time of heightened pressure on the global economy from U.S. President Donald Trump's aggressive and erratic trade policies.
Market reaction was swift. Crude oil jumped as much as 14% at one point, with Brent futures up $5.43 at $74.79 per barrel at 0541 GMT, and WTI futures up $5.55 at $73.59 per barrel. Gold climbed as high as $3,444.06 per ounce, bringing it close to the record high of $3,500.05 from April.
U.S. S&P E-mini futures slumped 1.6% and Nasdaq futures dropped 1.7%. Pan-European STOXX 50 futures tumbled 1.7%.
Japan's Nikkei lost 1.1%, South Korea's KOSPI dropped 1.3% and Hong Kong's Hang Seng declined 1%.
"The geopolitical escalation adds another layer of uncertainty to already fragile sentiment," said Charu Chanana, chief investment strategist at Saxo, adding that crude oil and safe-haven assets will remain on an upward trajectory if tensions continue to intensify.
Global stock markets had been poised for a fall following an almost unbroken rally since early April that took the MSCI All-Country World index to an all-time high this week, according to Jessica Amir, a strategist at MooMoo.
"There's room for fat to be taken off the table," she said.
"It just appears that this is the catalyst that will probably send equities down lower." Israel said its "preemptive strike" targeted Iranian nuclear facilities, ballistic missile factories and military commanders to prevent Tehran from building an atomic weapon.
Iran had launched about 100 drones towards Israeli territory in retaliation, which Israel is working to intercept, an Israeli military spokesman said.
Iranian state media confirmed on Friday the death of Iran's Revolutionary Guards Commander Hossein Salami in the strikes, with six nuclear scientists also killed.
U.S. Secretary of State Marco Rubio called the Israeli offensive a "unilateral action" and said that Washington was not involved.
Tensions had been building as Trump's efforts to reach a nuclear deal with Iran appear to be deadlocked. U.S. and Iranian officials were scheduled to hold a sixth round of talks on Tehran's escalating uranium enrichment programme in Oman on Sunday.
The latest flare-up in fighting in the Middle East comes as investors have been wrestling with major shifts in U.S. economic and trade policies, as Trump has shredded the playbooks that have governed international trade and the world order for decades.
U.S. Treasuries were bought in the rush for safer assets, sending the yield on 10-year notes to a one-month low of 4.31%.
Some traders were attracted to the dollar as a haven, with the dollar index up 0.6% to 98.277, retracing most of Thursday's sizeable decline.
The Swiss franc was also in demand, but was flat against the dollar at 0.8107. Fellow safe haven the yen edged down 0.1% to 143.71 per dollar, giving up earlier gains of 0.3%.
The euro sank 0.6% to $1.1521, retracing most of its 0.9% overnight jump to the highest since October 2021.
Sterling skidded 0.6% to $1.3540, after marking a fresh high since February 2022 at $1.3613 early in the day.
"Traders are now on edge over the prospects of a full-blown Middle East conflict," said Matt Simpson, a senior market analyst at City Index.
"That will keep uncertainty high and volatility elevated." - Reuters
