Asian stock markets found a degree of stability on Wednesday, with most regional indices trading steady to slightly higher.
A fragile ceasefire between Israel and Iran, announced by US President Donald Trump, appeared to buoy investor sentiment, even as the situation in the Middle East remains tense.
This cautious optimism, coupled with lower oil prices, is expected to provide a positive start for Indian benchmarks like the Sensex.
A shaky truce between Israel and Iran has, for now, held, offering a respite from the acute geopolitical fears that had previously rattled markets.
However, the calm is precarious. Israel has stated it will respond forcefully to the Iranian missile strikes that occurred after President Trump had announced an end to the hostilities, indicating that the potential for conflict to flare up again remains high.
Adding to the complexity, a preliminary US intelligence assessment has suggested that the recent US airstrikes did not destroy Iran’s nuclear capability, but only set it back by a few months.
This assessment contradicts President Trump’s earlier, more definitive comments that Iran’s nuclear program had been “obliterated.”
Despite these undercurrents, markets seem to be shrugging off the immediate risks. “Despite the cease fire between Israel and Iran appearing somewhat tenuous, the markets are shrugging it off,” commented Kyle Rodda, senior financial markets analyst at Capital.com.
Realistically, the markets don’t care if a limited conflict comprised of mostly air strikes continues between the two countries. It’s the prospect of a broader war, with deeper US intervention and an Iranian blockade of the Strait of Hormuz that really matters. And for now, the risks of that seem low.
This sentiment was reflected in Asian trading. Japan’s Nikkei and Australia’s stock benchmark were both flat. Taiwan’s index, however, gained 1 percent.
In Greater China, Hong Kong’s Hang Seng rose 0.6 percent, while mainland Chinese blue chips eased by a slight 0.1 percent.
An MSCI index of global stocks also held steady after reaching a record high overnight.
Indian markets poised for positive start amid global cues
Indian benchmark indices are set to open on a positive note on Wednesday, supported by the improved global cues following the ceasefire announcement.
Falling crude oil prices and a stable US dollar also bode well for the Indian market.
Nifty futures on the NSE International Exchange were trading 108.80 points, or 0.43 percent, higher at 25,180.50, hinting at a firm start for the domestic market.
However, with the monthly derivatives expiry scheduled for Thursday, volatility may remain high on Dalal Street.
Oil eases, currencies and bonds react
Oil prices, a key barometer of Middle East tensions, showed signs of stabilization after a significant plunge.
Brent crude ticked up 81 cents to $67.95 per barrel, bouncing back slightly after a steep fall of as much as $14.58 over the previous two sessions.
US West Texas Intermediate crude also added 70 cents to $65.07 per barrel.
The easing of geopolitical fears and the subsequent drop in oil prices have had a knock-on effect in bond and currency markets.
Lower oil prices reduce the immediate risk of an inflation shock, which is generally positive for bonds.
The two-year US Treasury yield dipped to its lowest point since May 8, at 3.787 percent.
The US dollar wallowed near an almost four-year trough versus the euro.
The dollar index, which measures the currency against six major counterparts, slipped 0.1 percent to 97.854.
The dollar also slipped 0.1 percent against the Japanese yen to 144.70.
The euro, meanwhile, added 0.1 percent to $1.1625, edging back towards the overnight high of $1.1641, a level not seen since October 2021.
Fed’s cautious stance and US economic data in focus
Investors are also still digesting comments from Federal Reserve Chair Jerome Powell, who on Tuesday acknowledged that higher tariffs could begin to raise inflation this summer.
His remarks, made during a hearing before the House Financial Services Committee, suggest a cautious stance from the US central bank regarding potential interest rate cuts.
This was further compounded by recent data showing that US consumer confidence unexpectedly deteriorated in June, signaling softening labor market conditions.
Despite this, markets continue to price in a roughly 18 percent chance that the Fed will cut rates as early as July, according to the CME FedWatch tool.
US stock futures were little changed in early Asian trade.
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