Asia Markets

Asia markets bounce back after US-Iran tensions appear to ease

Key Points
  • Asia Pacific markets traded up Thursday after U.S. President Donald Trump's comments on the Iran conflict eased investor worries about further escalation of geopolitical risks in the Middle East.
  • Trump said Iran appeared to be "standing down" but added the U.S. will "immediately impose additional punishing economic sanctions on the Iranian regime."
  • Oil prices tumbled nearly 5% overnight following Trump's remarks.

Asia Pacific markets rebounded Thursday after U.S. President Donald Trump's comments on the Iran conflict eased investor worries about further escalation of geopolitical risks in the Middle East.

The Nikkei 225 in Japan gained 2.31% to 23,739.87, erasing its losses from the previous session. The Topix index added 1.63% to 1,729.05.

In South Korea, the Kospi was up 1.63% to 2,186.45, while Hong Kong's Hang Seng index rose 1.35% in afternoon trade. Australia's ASX 200 rose 0.83% to 6,874.20, with the heavily weighted financials subindex gaining 0.5%.

Chinese mainland markets also traded higher: The Shanghai composite added 0.91% to 3,094.88, the Shenzhen composite was up 1.75% to 1,800.63 and the Shenzhen component gained 1.79% to 10,898.17.

"As sentiment improves, market participants unwound safe-haven bets with broad relief sell-off in the bond universe," Huani Zhu, an economist at Mizuho Bank, wrote in a morning note. "Whilst both the US and Iran had their 'proportionate retaliation' for now, we believe that it is in neither side's interest to escalate further."

U.S.-Iran tensions ease

Stocks sold off in Asia on Wednesday after Iran launched more than a dozen ballistic missiles against military bases housing American troops in Iraq. The strike followed the U.S. killing of Iran's top general, Qasem Soleimani, last Thursday in Baghdad. Iran had promised retaliation after the attack.

Trump then said Iran appeared to be "standing down" but added the U.S. will "immediately impose additional punishing economic sanctions on the Iranian regime."

His remarks appeared to put investors at ease as U.S. stocks rose overnight.

"The main driver was President Trump's delayed response to the missile strike yesterday, suggestive that he was taking a more cautious approach (than) his usual demeanour and prior tweets suggested," Tapas Strickland, director of economics and markets at the National Australia Bank, wrote in a morning note.

"Markets have now largely unwound the risk-off moves that have occurred since Friday," Strickland added.

Still, following Iran's attack, a report on Wednesday said two rockets fell inside the Green Zone in the Iraqi capital — it is the section in Baghdad that contains the U.S. Embassy, other embassies of Western nations and foreign businesses, according to Reuters. There were no casualties, Iraq's military said in a statement.

Oil prices waver

Oil prices tumbled nearly 5% overnight following Trump's remarks. During Asian trading hours on Wednesday, prices had surged about 4% in response to the Iranian attack.

Eurasia Group analysts pointed out fears within the oil industry that, if Iraq becomes the fighting ground in a potential armed conflict between Washington and Tehran, it would mean OPEC's second-biggest producer and one of the few countries with significant recent output increases would come under high risk of supply disruption.

U.S. crude futures retraced earlier gains to trade up 0.15% at $59.71 a barrel at 3:24 p.m. HK/SIN on Thursday. Global benchmark Brent traded fractionally higher at $65.49.

"Even with the receding threat of US/Iran conflict, a broad host of supply and demand factors, couple with some (Middle East, North Africa) geopolitical risk premium, means that Brent oil prices will now be in the USD 65-75 range," the Eurasia Group analysts wrote in a note.

The U.S. dollar also rose against a basket of its peers — the dollar index last traded at 97.289, climbing from around 96.818 in the previous session.

Among other currencies, the Japanese yen eased against the greenback to trade at 109.25 after strengthening to levels around 107.63 per dollar in the previous session.

Gold prices gave up gains Thursday afternoon: Spot gold was down 0.59% at 1,546.57 an ounce at 3:26 p.m. Gold futures for February delivery fell 0.83% to $1,547.3.

Spot palladium rose 0.62% to 2,119.27 on Thursday after breaching the $2,000 level earlier this week. It is used mainly in catalytic converters in vehicles.