Analysis of Recovery in Asian Stocks after Middle East Conflict Eases

Analysis of Recovery in Asian Stocks after Middle East Conflict Eases

After fears of a wider Middle East conflict eased, Asian stocks began to recover some of the losses that were seen recently. This recovery was driven by investors gravitating back towards riskier assets as the for a major supply disruption in the region waned. The news of the Israeli strike and Iran's decision not to retaliate helped boost market sentiment, with MSCI's broadest index of Asia-Pacific shares rising by 0.93% after a 1.8% drop on the previous Friday.

Japan's Nikkei added 0.48%, however, it underperformed compared to the rest of the region due to a high concentration of chip-sector shares, which tracked declines in U.S. peers from Friday. Australia's benchmark gained 0.96% and South Korea's KOSPI climbed 1.04%. Hong Kong's Hang Seng jumped by 2.26%, while mainland Chinese blue chips edged up 0.12% in their first chance to react to new measures aimed at promoting overseas investment in China's technology sector.

According to Kazuo Kamitani, a strategist at Nomura Securities, neither Israel nor Iran seem to want an escalation in the crisis in the Middle East. This has helped ease investor concerns, and with expectations of later Federal Reserve interest rate cuts and concerns about chip sector , investors remain cautious. However, Mideast tensions continue to stay on the market's radar.

The world equities index suffered its worst week since March 2023 last week, dropping by 2.85%. Early on Monday, it was up by just 0.06%. U.S. futures added 0.26%, following a 0.88% drop for the S&P 500 on Friday. Bond yields rose back toward multi-month highs, with the 10-year U.S. Treasury yield adding as much as 9 basis points to 4.658%.

The dollar index eased by 0.07% to 106.03, after reaching a five-month top last week. Gold slid by 0.6% to $2,376.40, retreating from near the all-time peak of $2,431.29 from last week. Crude oil prices fell as traders put the focus back on fundamentals, with Brent futures falling by 54 cents to $86.75 a barrel. The front month U.S. West Texas Intermediate (WTI) crude contract for May fell by 12 cents to $83.02 a barrel.

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According to Nomura's Kamitani, it appears that the uptrend in oil prices may be over, but technical levels suggest that as long as WTI does not break below $80, the uptrend is still in place. This indicates that investors should remain cautious about the future direction of oil prices.

Overall, the recovery in Asian stocks following the easing of tensions in the Middle East has provided some relief to investors. However, various factors such as expectations of Fed interest rate cuts, concerns about chip sector earnings, and ongoing geopolitical tensions continue to keep markets volatile and investors on edge. It is important for investors to carefully monitor these developments and adjust their accordingly.

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