In a recent address, U.S. President Donald Trump proclaimed that the United States will retaliate against Iran “extremely hard” within the next two to three weeks.
"We're going to hit them extremely hard over the next two to three weeks," he stated. "We're going to bring them back to the stone ages, where they belong."
In the aftermath of his speech, Asian stock markets experienced a notable decline, accompanied by a drop in U.S. Treasury yields, while oil prices saw a marked increase.
Asian markets, which had previously shown gains on Thursday, reversed course, with South Korea's Kospi index suffering a 4.37% decline, marking the steepest drop among regional benchmarks. Trading on the Hong Kong and mainland Chinese exchanges also opened lower following Trump’s announcement.
In the U.S., stock futures saw a decline of over 1% across all three major indexes after briefly trading flat. The yield on the benchmark 10-year Treasury notes rose by 6 basis points to 4.38%, reflecting a sell-off trend within the bond market. Additionally, the U.S. dollar index increased by 0.37% to reach 100.02, while the Japanese yen depreciated by 0.38% against the U.S. dollar.
Oil prices experienced a significant surge, with Brent crude futures escalating by 5.37% to $106.59 per barrel and U.S. West Texas Intermediate rising by 4.51% to $104.64. Analysts have expressed concern that Trump's threats of military escalation may lead to persistently high energy prices, due to the risk of damage to critical energy infrastructure in the region.
Earlier in the week, Trump had indicated that the U.S. might be nearing its objectives in Iran and would consider a ceasefire request from Iran only after securing the Strait of Hormuz. However, the announcement of additional military deployments to the region has raised doubts about these statements and contributed to market uncertainty.
"Markets reacted negatively because, while Trump says it is nearly over, he is sending the third aircraft carrier and more troops to the region, so it is hard to believe his words," noted Alicia Garcia Herrero, Chief Economist for Asia Pacific at Natixis.
As the situation unfolds, the potential for extended military engagement in the Middle East continues to impact market sentiment, with expectations of further volatility on the horizon.
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