By Rae Wee
SINGAPORE, March 31 (Reuters) – Oil prices were set for a record monthly rise on Tuesday while Asian shares were headed for their steepest fall in six years, capping a tumultuous month as the war in the Middle East stoked fears of higher inflation and slower growth.
Bonds were headed for their largest decline in months, owing to the hawkish sea change in the global outlook for interest rates, while the dollar was on the cusp of its strongest gain in eight months.
A month into the war, investors continue to be whipsawed by a barrage of headlines as tensions and attacks between the U.S., Israel and Iran escalate.
“It appears markets have gone from just mechanically trading headlines … into a little bit more of a fear mode, taking risk off the table,” said Vishnu Varathan, Mizuho’s head of macro research for Asia ex-Japan.
“That partly might have to do with the transition from earlier thinking that there’s a good chance of Trump being able to control the timeline and/or your TACO trade, to now beginning to be concerned or fearing a more prolonged conflict.”
Markets turned a little more upbeat after The Wall Street Journal reported that U.S. President Donald Trump told aides he is willing to end the military campaign against Iran even if the Strait of Hormuz remains largely closed.
Nasdaq futures were up 0.73% and S&P 500 futures rose 0.84%. EUROSTOXX 50 futures advanced 0.35%, while DAX futures gained 0.48%.
Brent crude futures pared gains and were last up 0.24% at $113.05 a barrel, on track for a 56% rise this month, the largest on record.
U.S. crude was little changed at $102.98 a barrel, though it was still headed for a monthly rise of roughly 54%, the most in nearly six years.
“I think inflation will be the bigger near-term concern for global markets,” said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics.
“But if oil prices don’t fall back over the next few months, we will probably have to start thinking about growth too.”
The higher-for-longer energy prices have meant more pain for Asia, which is highly reliant on energy from the Middle East.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.43%, on track for a monthly fall of more than 13%, the most substantial decline since March 2020. Japan’s Nikkei was down 1.27% and set to lose nearly 13% this month, while South Korea’s Kospi was headed for a monthly decline of more than 18%, the most since 2008.
BONDS UNDER WATER, DOLLAR IS KING
The threat of inflation has led investors to ramp up expectations for rate hikes across major central banks this year, which in turn hammered bonds.
The Federal Reserve is now expected to keep rates on hold this year, compared with more than 50 basis points worth of easing priced in prior to the start of the war.
Fed Chair Jerome Powell on Monday said the U.S. central bank can wait to see how the Iran war affects the economy and inflation, noting that policymakers typically look through shocks such as those from higher oil prices.
U.S. Treasury yields steadied on Tuesday, though the two-year yield was set to rise more than 40 bps for the month, its largest increase since October 2024.
The benchmark 10-year yield has similarly advanced about 36 bps in March, its largest monthly rise since December 2024.
In currencies, the dollar was headed for its biggest monthly gain since July, having emerged as one of the few safe-haven assets amid the war.
Against a basket of currencies, the greenback was set to rise roughly 2.9% this month. The euro, which last bought $1.1469, was headed for a nearly 3% monthly loss while sterling was down more than 2% in March.
The yen remained a whisker away from the 160 per dollar level and last stood at 159.63.
Asian currencies have come under heavy selling amid the war, putting them among the largest losers globally. India’s rupee, Indonesia’s rupiah and the Philippine peso have been pulled to record lows against the dollar this month.
“For the long Asian currencies positions, we have closed them out,” said Ang Ze Yi, an Asian fixed income senior portfolio manager at AllianzGI. “We still like them on a structural basis, but for now, we have neutralised and we just want to let the volatility and uncertainty die down first, before we put those positions back on.”
In precious metals, spot gold was up 1.2% at $4,564.73 an ounce.
(Reporting by Rae Wee; Editing by Thomas Derpinghaus)
Comments