Global Markets Decline as Trump Vows Continued Iran Strikes, Dollar Gains
Global financial markets reacted negatively on Thursday as concerns over the U.S.-Iran conflict intensified following a speech by President Donald Trump that offered little certainty on an end to hostilities. Investors sold risk assets broadly, sending stocks lower and pushing the dollar and oil prices higher.
In his address, Trump stated that the United States would strike Iran 'extremely hard' within the coming weeks, asserting that military objectives were nearly complete and the war was nearing its conclusion. However, his remarks did not specify when the conflict would end or when the critical Strait of Hormuz shipping lane might reopen, leaving markets unsettled.
'We have no additional certainty or clarity around timeline from this address and this is what the market was looking for,' commented Jon Withaar, a senior portfolio manager at Pictet Asset Management in Singapore. He noted that the possibility of two to three more weeks of military action, the non-exclusion of ground troops, and reiterated threats against infrastructure would keep markets on the defensive, especially ahead of a long weekend.
The immediate market reaction was swift. U.S. stock futures dropped about 1%, while European futures sank over 1.5%. Asian equities were hit hard, with Japan's Nikkei falling 1.8% and South Korea's Kospi sliding 3.6%. MSCI's broadest index of Asia-Pacific shares outside Japan declined more than 1.5%, with nearly all regional bourses in negative territory.
Oil prices surged, with the front-month Brent contract for June rising approximately 5% to $106.16 per barrel. 'The only thing that really matters is whether the Strait of Hormuz will open soon. Trump's speech doesn't imply this is likely to happen as quickly as the markets were expecting,' said Prashan Newnaha, senior rates strategist at TD Securities. Trump had commented that the U.S. does not need the strait and it would reopen naturally once the conflict concludes, though Iran continues to use the waterway as leverage.
Newnaha also observed that Trump's comparison of the Iran war's duration to prior conflicts suggested it might be shorter, but stressed that expectations remain for a stronger dollar and higher oil as risk is shed. The speech revived fears of stagflation—a combination of high inflation and stagnant growth—that had rattled markets in March when soaring oil prices battered risk assets.
Consequently, the U.S. dollar strengthened against major currencies, reclaiming ground lost in the previous two days on hopes for a swift war end. The euro weakened 0.25% to $1.156, and the dollar index, which measures the greenback against a basket of six currencies, rose 0.3% to 99.858.
