A palpable sense of unease gripped Asian stock markets at Thursday’s open, with most regional indices edging lower as investors nervously eyed the potential for the United States to become directly involved in the week-old air war between Israel and Iran.
This heightened geopolitical tension sent investors scurrying for traditional safe-haven assets like gold and the Japanese yen, while Indian benchmarks, including the Sensex, were poised for a weaker start.
The market’s cautious mood was significantly influenced by remarks from US President Donald Trump, who kept the world guessing about potential US military action against Iranian nuclear sites.
Speaking to reporters outside the White House on Thursday, Trump stated, “I may do it. I may not do it.”
This ambiguity did little to soothe frayed nerves. Adding to the apprehension, The Wall Street Journal reported that President Trump had told senior aides he approved attack plans on Iran but was currently holding off on giving the final order, ostensibly to see if Tehran would abandon its nuclear program.
“Market participants remain edgy and uncertain,” commented Kyle Rodda, senior financial markets analyst at Capital.com.
“Speculation remains rife – fed probably strategically by the Trump administration – that the US will intervene, something that would mark a material escalation and could invite direct retaliation against the US by Iran.”
Rodda further warned, “Such a scenario would raise the risk of a greater regional conflict, with implications for global energy supply and probably economic growth.”
This geopolitical uncertainty translated into clear market movements. Japan’s Nikkei sank 0.8%, with additional downward pressure stemming from a stronger yen, which tends to reduce the value of overseas revenues for the country’s major exporters.
Taiwan’s stock benchmark slid 0.9%, and Hong Kong’s Hang Seng declined 0.8%.
US S&P 500 futures also pointed 0.4% lower, although most US markets, including Wall Street and the Treasury market, are closed on Thursday for a national holiday.
Indian markets set to extend losses amid global caution
Indian stock market benchmark indices, the Sensex and Nifty 50, are likely to extend their losses and open lower on Thursday.
The cautious sentiment is being driven by the ongoing Israel-Iran conflict and the market’s digestion of the US Federal Reserve’s latest policy announcement.
Trends on Gift Nifty also indicated a weak start for the Indian benchmark index, with Gift Nifty trading around the 24,740 level, a discount of nearly 87 points from Nifty futures’ previous close.
This follows a session on Wednesday where the domestic equity market extended its fall for the second straight day.
The Sensex had declined 138.64 points, or 0.17%, to close at 81,444.66, while the Nifty 50 settled 41.35 points, or 0.17%, lower at 24,812.05.
Fed holds rates, Powell warns of tariff-driven inflation
Overnight, the US Federal Reserve delivered a somewhat mixed message to markets. As widely expected, policymakers decided to keep benchmark interest rates steady at 4.25% to 4.5%.
The Federal Open Market Committee (FOMC) officials also maintained their projections for a total of 50 basis points (bps), or 0.50%, in interest rate cuts during 2025.
However, Fed Chair Jerome Powell struck a cautious note regarding further easing in his subsequent press conference.
He stated that he expects “meaningful” inflation ahead, attributing this outlook to the potential impact of President Trump’s aggressive trade tariffs.
This warning about future inflation adds another layer of complexity for investors already grappling with geopolitical risks.
Safe havens gain, oil remains elevated
In response to the heightened uncertainty, traditional safe-haven assets saw increased demand. Gold advanced 0.3% to $3,378 per ounce.
The Japanese yen, another favored haven, gained 0.2% to 144.92 per dollar.
The US dollar itself also found some haven demand, gaining 0.1% against the euro to $1.1472 and 0.2% against the British pound to $1.3398.
The Swiss franc, however, edged down 0.1% to 0.8193 per dollar.
Brent crude oil prices edged down slightly to $76.32 per barrel but remained not far from the 4-1/2-month peak of $78.50 reached on Friday, reflecting ongoing concerns about potential disruptions to global energy supply.
Later in the day, policy decisions from the Bank of England and the Swiss National Bank are expected.
The BOE is widely anticipated to keep interest rates steady, while the SNB is seen as likely to cut rates by 25 basis points.
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