By Ankur Banerjee
SINGAPORE, March 26 (Reuters) – Asian stocks slid in choppy trading while the oil rose on Thursday as investors treaded cautiously amid the dizzying pace of developments in the Middle East, with Iran saying it would weigh a U.S. proposal to end the conflict.
The widening war has jolted global markets this month, sending oil prices soaring, reigniting inflation fears and upending global interest rate expectations.
Contradictory messages from the two sides over ceasefire talks have kept investors on edge.
U.S. President Donald Trump said Iran was desperate to make a deal while Iranian Foreign Minister Abbas Araqchi said there had been no dialogue or negotiations with the U.S., although various messages had been exchanged through intermediaries.
Japan’s Nikkei reversed early gains to trade 0.7% lower while South Korean stocks fell 2.7% and Hong Kong’s Hang Seng index slid 1.7%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell more than 1% lower, set for a 9.5% decline this month, its biggest monthly drop since October 2022.
The sombre mood will continue in Europe, with stock futures indicating a lower open. U.S. stock futures were also down.
“It looks like the market’s relief trade is starting to wobble,” said Charu Chanana, chief investment strategist at Saxo. “Traders are also remembering that one peace rumour does not undo the inflation and rates damage already in the system.”
The nearly month-long war triggered by joint U.S.–Israeli strikes on Iran in late February has resulted in Iran effectively shutting the Strait of Hormuz, a conduit for a fifth of global oil and liquefied natural gas flows.
The disruption has sent crude prices surging above $100 per barrel. Brent crude futures were at $104.53, up over 2% on the day, and set for a 43.6% jump in the month.
The dollar held firm near recent highs and was on track for a 2% monthly gain, cementing its status as the preferred safe haven.
The latest comments by Iran suggested some willingness by Tehran to negotiate an end to the war if its demands were met. The U.S. sent a 15-point ceasefire proposal to Iran that was originally brushed aside by Iranian officials.
“If you look at what the U.S. wants to achieve, what Israel wants to achieve, and what Tehran wants to achieve, it will be very hard to reconcile all these points,” said Matthias Scheiber, senior portfolio manager and the head of the multi asset team at Allspring Global Investments.
“We still think there is a case to make for structurally higher energy prices for the moment.”
Fears of an inflationary aftershock have pushed traders to price out any chance of a Federal Reserve rate cut this year, supporting the dollar. Bets on U.S. rate hikes briefly gained traction but have since been pared back.
The yield on Japan’s two-year government bond hit its highest level in 30 years as traders cemented wagers of a Bank of Japan interest rate hike as early as April. [JP/]
European Central Bank President Christine Lagarde opened the door on Wednesday to raising rates if war in the Middle East pushes up inflation in the euro area for some time.
“If the shock gives rise to a large though not-too-persistent overshoot of our target, some measured adjustment of policy could be warranted,” Lagarde said in Frankfurt.
The euro was little changed at $1.1564, while sterling bought $1.3362. The yen hovered at 159.44 per dollar, near the closely watched 160 level that traders see as a potential trigger for intervention.
Gold reversed course to trade 0.3% lower at $4,439 per ounce as the selloff in the yellow metal extended. Gold is on course for a 14% drop this month, which would be its steepest monthly decline since October 2008.
(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)
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