The market’s rebound on Monday marked a notable shift in sentiment, as investors moved away from the cautious stance prompted by escalating tensions in the Middle East. This change came in response to Iran’s unexpected announcement that it had no intentions of retaliating following an Israeli drone attack on its territory, which had been preceded by an Iranian missile and drone assault on Israel. As the specter of a wider conflict between the two nations diminished, investors were quick to gravitate back towards riskier assets, driving up Asian stocks.
MSCI’s broadest index of Asia-Pacific shares surged by 0.93%, reclaiming some of the ground lost during the previous Friday’s 1.8% decline. While Japan’s Nikkei rose by 0.48%, it lagged behind other regional indices due to weakness in chip-sector shares, which tracked losses seen in their U.S. counterparts. Meanwhile, Australia’s benchmark index climbed by 0.96%, and South Korea’s KOSPI posted a gain of 1.04%. The Hang Seng index in Hong Kong experienced a notable leap of 2.26%, indicating a strong resurgence in investor confidence. Similarly, mainland Chinese blue chips edged up by 0.12%, reacting positively to new measures aimed at promoting overseas investment in China’s technology sector announced on the preceding Friday.
Analysts noted that the prevailing sentiment was buoyed by the apparent reluctance of both Israel and Iran to escalate the conflict further, thereby alleviating concerns among investors. However, they cautioned that lingering uncertainties surrounding future Federal Reserve interest rate decisions and ongoing apprehensions regarding chip sector earnings could keep investors on edge in the coming days.
Despite the easing tensions, the situation in the Middle East remained on the market’s radar. Reports of rockets launched from Iraq towards a U.S. military base in northeastern Syria underscored the region’s geopolitical volatility, serving as a reminder of potential flashpoints that could unsettle global markets.
The previous week had been particularly challenging for global equities, with MSCI’s world equities index recording its worst performance since March 2023, dropping by 2.85%. While U.S. stock futures indicated a modest gain of 0.26% following a decline in the S&P 500 on Friday, investors remained cautious amid ongoing uncertainties.
Bond yields, which had been on an upward trajectory, continued to rise towards multi-month highs. The 10-year U.S. Treasury yield approached its five-month peak reached the previous week, reflecting expectations that the Federal Reserve would maintain its current policy stance given robust economic data and persistent inflationary pressures.
In the currency markets, the dollar index eased slightly from its recent highs, while gold prices retreated from their peak levels. Crude oil prices declined, with Brent futures falling to $86.75 a barrel and the front-month U.S. West Texas Intermediate (WTI) crude contract for May slipping to $83.02 a barrel.
Although downward pressure on oil prices was evident, analysts emphasized that the uptrend remained intact as long as WTI crude stayed above the $80 mark, highlighting the significance of technical levels in assessing market trends.
