Escalating Middle East tensions fuel oil prices while Asian stock markets demonstrate resilience amid geopolitical fears and positive China economic data.
WTI extended gains with US dollar strength capped, while Asian equities recovered
The ongoing hostilities between Israel and Iran entered a fourth day on Monday with no sign of easing, stoking fears of wider conflict in the oil-rich Middle East region that could disrupt oil supplies via the closure of the Strait of Hormuz.
WTI crude oil extended its gains by 0.7% in today’s Asian session after a significant rally last Friday, where it recorded a weekly gain of 12.4% to US$73.08/barrel, its highest level in almost six months.
US President Trump’s Sunday remarks suggesting potential US involvement in the Israel-Iran conflict have heightened geopolitical risk concerns, potentially fuelling a rise in the risk premium and triggering a negative feedback loop into risk assets such as equities.
Interestingly, the Asian stock market managed to show resilience today after last Friday’s risk-off episode, reinforced by better-than-expected key economic data out from China that indicated a possible turnaround in China’s sticky deflationary environment.
China’s House Price Index for May recorded a slower pace of decline at -3.5% y/y from -4% printed in April, and retail sales rose to 6.4% y/y in May from 5.1% in April, above the consensus forecast of 5.9%. The Hang Seng China Enterprises Index rose 0.2%, the Hang Seng Index was almost unchanged, while Japan’s Nikkei 225 rallied by 1.2%.
The strength of the US dollar remained capped as the dollar’s safe-haven status in times of rising geopolitical tensions is being challenged now due to the rising US budget deficit and the current US White House Administration’s erratic way of handling its trade policy.
The US Dollar Index is trading almost unchanged in today’s Asian session after a marginal gain of 0.3% on last Friday, 13 January. It continues to remain below its 20-day moving average, which is acting as near-term resistance at around 99.20.
After three days of consecutive gains seen in Gold (XAU/USD), which posted an accumulated positive return of 3.4% from last Monday to Friday, the yellow metal saw profit-taking activities emerge in today’s Asian session as it shed by -0.09% to US$3,247 after it hit an intraday high of US$3,451, just 1.4% away from its current all-time high of US$3,500 recorded in April.
