Oil prices continued to rise, share prices skidded, and US futures were lower on Tuesday after Israeli military issued evacuation warnings to 3,30,000 people in Iran’s capital, Tehran.
The evacuation warning was for a part of Tehran, a city of 9.5 million, that houses the country’s state TV and police headquarters and three large hospitals, including one owned by Iran’s paramilitary Revolutionary Guard. US President Donald Trump announced he was returning from the G7 summit in Canada a day early due to the intensifying conflict.
The futures for the S&P 500 and the Dow Jones Industrial Average were down 0.3%.
Asian shares were mixed – Tokyo’s Nikkei 225 index climbed 0.6% to 38,547.56 as the Japanese central bank opted to keep its key interest rate unchanged at 0.5%.
The Bank of Japan has been gradually raising its rate from near zero and cutting back on its purchases of Japanese government bonds and other assets to help counter inflation. It said economic growth was likely to moderate and there was some weakness in consumer sentiment, housing investment.
“In particular, it is extremely uncertain how trade and policies in each jurisdiction will evolve and how overseas activity and prices will react to them,” the BOJ’s statement said.
Chinese shares edged lower. In Hong Kong, the Hang Seng slipped 0.1% to 24,038.56. The Shanghai Composite index declined 0.2% to 3,382.14.
In South Korea, the Kospi gained 0.4% to 2,956.88.
Australia’s S&P/ASX 500 gave up 0.1% to 8,543.60. Taiwan’s Taiex gained 0.6% and in Bangkok the SET was little changed.
Israel and Iran’s escalating attacks have led to concerns of flow of Iran’s oil to its customers. There are fears gas prices could rise worldwide and stay high this time, unlike previous times when the strikes in oil prices were brief.
Last week, crude jumped 7% after Israel’s attack on Iranian nuclear and military targets. Early Tuesday, US benchmark crude oil gained 31 cents to $72.08 per barrel, while Brent crude, the international standard, was up 33 cents at $73.56 per barrel.
On Monday, Wall Street’s mood had been relatively calmer as the S&P 500 climbed 0.9% to reclaim most of its drop from Friday. It closed at 6,033.11. The Dow Jones Industrial Average added 0.8% to 42,515.09, and the Nasdaq composite gained 1.5% to 19,701.21.
US Steel rose 5.1% after Trump signed an executive order on Friday paving the way for an investment in the company by Japan’s Nippon Steel. Trump would have unique influence over the operations of US Steel under the terms of the deal.
They helped offset drops for defence contractors, which gave back some of their jumps from Friday. Lockheed Martin fell 4%, and Northrop Grumman sank 3.7%.
The price of gold receded after jumping on Friday, when investors were looking for some place safe to park their cash. An ounce of gold fell $14.60 to $3,402.40 per ounce.
Among other concerns, investors believe Donald Trump’s tariffs still threaten to slow the US economy and raise inflation if Washington doesn't win trade deals with other countries.
This spectre of tariffs was looming over the meeting of the Group of Seven major economies in Canada.
Later this week, the Federal Reserve is set to discuss whether to lower or raise interest rates, with the decision due on Wednesday.
After one interest rate cut late last year, the Federal Reserve has hesitated to lower interest rates, since it’s waiting to see how much Trump’s tariffs will hurt the economy and raise inflation, which has so far remained near the Fed’s 2 per cent target.
The nearly unanimous expectation among traders and economists is that the Fed will stand pat.
More important for financial markets on Wednesday will likely be forecasts for where Fed officials they see the economy and interest rates heading in upcoming years.
In other dealings early Tuesday, the US dollar fell to 144.59 Japanese yen from 144.75 yen. The euro rose to $1.1564 from $1.1562.
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