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Asian stocks on edge, oil soars on escalating Middle East tensions

April 12
13:27 2018

Asian stocks came under pressure on Thursday as the threat of imminent US military action in Syria rattled investors and sent oil prices to their highest levels since late 2014 on concerns about supply.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.05 percent in early trade while Japan’s Nikkei .N225 dropped 0.4 percent.

On Wednesday, the S&P 500 .SPX lost 0.55 percent and the Nasdaq Composite .IXIC dropped 0.36 percent while energy shares .SPNY gained more than 1 percent on rising oil prices.

Trump declared that missiles “will be coming” in Syria, taunting Russia for supporting Syrian President Bashar al-Assad after a suspected chemical attack on rebels. Damascus and Moscow have denied any responsibility.

His comments raised the prospect of direct conflict over Syria for the first time between the two world powers backing opposing sides in the seven-year-old civil war, which has also escalated a rivalry between Saudi Arabia and Iran.

“Last year Russia and Syria did not shoot back against US missiles. But this time the scale of possible attacks by the US and possibly its allies seems larger. If Russia fires back, the war front will be bigger,” said Hidenori Suezawa, financial market analyst at SMBC Nikko Securities.

“I don’t think we are heading into the World War Three but should there be a direct collision between the US and Russia for the first time, that’s the sort of headline that would plunge stock prices,” he added.

The tension intensified in another front as Saudi Arabia said its air defence forces intercepted three ballistic missiles fired at Riyadh and other cities by Yemen’s Houthis.

Fears of military conflicts in the Middle East have boosted oil prices as well as safe-haven assets such as gold.

Both US crude and global benchmark Brent traded at the highest levels since 2014 as geopolitical concerns overshadowed a surprise buildup in US crude inventories.

US crude futures CLc1 traded at USD 66.79 a barrel, having risen 7.6 percent so far this week. They have traded as high as USD 67.45 on Wednesday, a level last seen in December 2014.

Brent LCOc1 traded at USD 71.93 a barrel, having touched a high of USD 73.09 on Wednesday.

Gold XAU= stood at USD 1,353.10 per ounce, having climbed to USD 1,365.30. A break above its Jan. 25 high of USD 1,365.8 would take the yellow metal to a high last seen in August 2016.

In the currency markets, the yen was helped by the risk averse mood.

The dollar eased to 106.82 yen JPY=, having lost momentum after hitting a five-week high of 107.49 a week ago.

The euro EUR= traded at USD 1.2370, having risen for a fourth day in a row on Wednesday. Still, the currency has mostly been in a holding pattern since late January.

The Russian rouble steadied on Wednesday after two days of heavy selling due to worries about the Syrian conflict and new punitive sanctions by the United States.

It closed around 62.59 to the dollar RUBUTN=MCX, still down more than 7 percent so far this week.

The Turkish lira TRYTOM= traded at 4.1383 per dollar after hitting a record low of 4.1944 on Wednesday.

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