- The escalation of the US-Iran conflict has triggered a rebound in geopolitical risk premiums, putting significant pressure on the MSCI Asia Pacific (excluding Japan) index (.MIAPJ0000PUS).
- Although the tense geopolitical situation has caused a slight rise in Brent crude futures (BRN1!) and WTI crude futures (CL1!), the overall supply chain has not yet faced substantial disruption, and the market still views it as an event-driven risk rather than a macroeconomic shock.
- Investors are focusing on the upcoming release of the US May Consumer Price Index (CPI). If core inflation indicators exceed expectations, the Federal Reserve's (Fed) monetary policy stance next week may lean hawkish.
Significant Pullback Recorded in Asia-Pacific Stock Markets
Major stock indices in the Asia-Pacific region generally fell on Wednesday due to the intensifying US-Iran military conflict. The Nikkei 225 index (NI225) gave up early gains, closing down about 2%. The tech-heavy Korea Composite Stock Price Index (KOSPI) faced heavy selling pressure, with losses widening to nearly 7%, indicating short-term valuation adjustments in the AI sector. In contrast, the Euro Stoxx 50 index futures (FESX1!) remained relatively stable, as investors opted to stay on the sidelines amid rising global macro uncertainties, awaiting further clarity on the conflict's impact.
Moderate Reaction in Energy Markets Reflects Risk Restraint
Compared to the sharp fluctuations in equity markets, the volatility in commodity markets was relatively restrained. Brent crude futures (BRN1!) rose moderately by 0.7% to $92.08 per barrel, while WTI crude futures (CL1!) increased by 0.6% to $88.73 per barrel. Analysts noted that oil prices hovering around $90 per barrel indicate that current pricing has not fully accounted for the risk of widespread supply disruptions. If future attacks directly affect core energy infrastructure or key shipping hubs in the Middle East, international oil prices may face a more significant revaluation.
Fed Policy Outlook Focuses on Inflation Data
The potential supply-side shocks from geopolitical conflicts make the upcoming US May CPI data more critical. The market generally expects the May CPI year-on-year increase to reach 4.2%. If the actual data shows a stronger-than-expected rebound, the Fed may find it challenging to maintain a dovish policy outlook at next week's meeting. Although a single supply-side disturbance may not directly drive rate hikes, persistently rising energy prices could solidify inflation expectations, forcing monetary authorities to maintain high interest rates for a longer period.
Safe-Haven Sentiment in Forex Market Pressures Yen
In the forex market, the US dollar index remained strong, suppressing non-US currencies. The euro against the dollar (EURUSD) and the pound against the dollar (GBPUSD) traded around 1.1548 and 1.3380, respectively. The dollar against the yen (USDJPY) once again reached the critical level of 160.36. With Japan's wholesale price increase in May marking the fastest pace in three years, the pressure from imported inflation continues to spread, and the market has almost fully priced in the Bank of Japan's (BOJ) rate hike expectations at the June 16 policy meeting. If the yen further breaks below key support levels, Japanese regulators may take substantial intervention measures.
Deep Correction in Precious Metals Valuation to Multi-Week Lows
Despite the backdrop where safe-haven sentiment should boost safe-haven assets, spot gold (GOLD) experienced an unusual deep correction on Wednesday, plummeting 2% to $4,174.20 per ounce, hitting an 11-week low. Analysts believe that high US Treasury yield expectations and a strong US dollar index exert significant valuation pressure on non-interest-bearing assets. If subsequent US inflation data further confirms that macro interest rates will remain high for longer, gold prices may continue to face short-term pressure and volatility.
