Markets Reassess as Iran-Israel Tensions Rise, Reports Reuters

By Jamie McGeever

A glimpse into the upcoming day in Asian markets reveals a cautious atmosphere as the final quarter of the year commences. The optimism that characterized the end of the third quarter has quickly dissipated, replaced by a sense of wariness among investors.

On Tuesday, the market reacted sharply to geopolitical tensions as Iran launched ballistic missiles at Israel in response to ongoing Israeli operations against its Hezbollah allies in Lebanon. This prompted investors to abandon riskier assets such as stocks in favor of safer havens like U.S. Treasuries, gold, and the dollar. Consequently, global stocks experienced their worst day in a month, while the yield on 10-year U.S. bonds saw its largest drop in the same time frame. Oil prices surged by 3%, having previously risen by 5%.

Adding to the negative sentiment in the markets was a significant downgrade in the projected U.S. GDP growth. The Atlanta Federal Reserve’s GDPNow model revised its estimate for third-quarter U.S. growth down to 2.5%, a decline from the previous estimate of 3.1%. This downward revision marked the most considerable decrease since the model was introduced in late July.

This cautious mood is likely to extend into Wednesday’s trading across Asia. With Chinese markets closed for Golden Week, attention will turn to important economic indicators from South Korea, including inflation and manufacturing purchasing managers’ index data, as well as consumer confidence figures from Japan.

Despite a sharp increase in oil prices on Tuesday, the overall negative year-on-year trend in oil prices remains a critical factor contributing to the cooling inflation rates globally—this decline occurring more rapidly than many economists had anticipated. In Europe, for instance, inflation is either at or below the 2% target set by numerous central banks. South Korea’s consumer inflation for September is expected to show a decrease to 1.9%, down from 2.0% in August, marking the first instance below the 2% threshold since March 2021.

Japan’s markets are expected to exhibit relative calm on Wednesday, despite futures indicating an opening decline of over 1%. Investors are slowly adapting to the new political landscape under Prime Minister Shigeru Ishiba, who had previously been labeled a monetary policy hawk but now appears to be moderating his stance. Ishiba has expressed hope that the Bank of Japan will uphold a loose monetary policy and plans to continue the economic strategies of his predecessor, Fumio Kishida, aiming to fully guide Japan out of deflation.

Key developments that could influence Asian markets on Wednesday include:
– South Korea’s inflation data for September
– South Korea’s manufacturing PMI for September
– Consumer confidence figures from Japan for September