Asian equities dropped in early trading Thursday after attacks on key energy infrastructure amid an escalating Middle East war drove oil prices higher.
Japan’s Nikkei 225 slumped 2.4% ahead of a rate decision while a broader gauge of Asian shares also fell more than 1.3% as investors trimmed risk. US futures edged lower after the S&P 500 and Nasdaq 100 both declined 1.4% Wednesday.
Brent crude rose above $111 per barrel as strikes between Iran and Israel on critical energy facilities, which included damage to the world’s largest liquefied natural gas export plant in Qatar, raised concerns of a more lasting impact from the conflict.
Treasuries sold off across the curve on Wednesday, pushing yields higher and lifting the dollar after Federal Reserve Chair Jerome Powell said the Iran conflict has added fresh uncertainty to the inflation outlook, making the path for interest rates harder to gauge. Officials left rates unchanged and continued to expect one cut this year.
“There is little doubt that higher oil prices are starting to have a broader impact, and with volatility elevated, headline risk remains ever present,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “The Fed meeting was largely a non-event, but once again it is developments in the energy complex that are driving cross-asset flows.”
Beyond the focus of the war, concerns over the health of the private credit market continued to play out. S&P Global Ratings lowered its outlook on Cliffwater LLC’s flagship private credit fund to negative, citing elevated redemption requests. Pacific Investment Management Co. is staying away from private credit loans being put up for sale over quality concerns, its president Christian Stracke said.
Powell’s comments prompted traders to scale back expectations for rate cuts this year, reinforcing a higher-for-longer rate outlook amid volatility in energy markets.
The yield on two-year Treasuries steadied on Thursday after jumping 10 basis points to 3.77% in the previous session. Traders are pricing in only about 15 basis points worth of Fed easing this year, less than one full quarter-point cut.
In economic forecasts released with their decision, Fed officials raised their outlook for inflation in 2026 to 2.7% from 2.4%. Notably, they saw the core measure — which excludes volatile food and energy categories — also rising to 2.7%.
“The Fed didn’t move today — but it didn’t need to,” said Gina Bolvin, president of Bolvin Wealth Management Group. “This is a central bank that’s comfortable waiting, watching, and staying flexible. One projected cut tells you everything: the Fed is not in a rush, and neither should investors be.”
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Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 9:08 a.m. Tokyo time
- Hang Seng futures fell 1.9%
- Japan’s Topix fell 1.8%
- Australia’s S&P/ASX 200 fell 1.5%
- Euro Stoxx 50 futures fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.1% to $1.1469
- The Japanese yen was little changed at 159.74 per dollar
- The offshore yuan was little changed at 6.8944 per dollar
- The Australian dollar rose 0.2% to $0.7040
Cryptocurrencies
- Bitcoin was little changed at $71,285.1
- Ether rose 0.9% to $2,206.3
Bonds
- The yield on 10-year Treasuries was little changed at 4.27%
- Japan’s 10-year yield declined six basis points to 2.205%
- Australia’s 10-year yield advanced seven basis points to 4.97%
Commodities
- West Texas Intermediate crude rose 3.1% to $99.34 a barrel
- Spot gold rose 0.6% to $4,845.92 an ounce
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