Asian stocks were down on Tuesday as uncertainty surrounded politics in the Middle East.
Image: Philip Fong / AFP
Asian stocks fell and crude prices diverged on Tuesday after fresh US strikes on Iran deflated optimism that a deal to reopen the Strait of Hormuz was imminent.
The United States and Iran have been trying to reach a deal to end the Middle East war and reopen the crucial waterway since a fragile ceasefire on April 8.
Stocks had rallied on Monday, and crude futures contracts dropped below $100 a barrel after reports that a deal was on the cusp of being struck.
But these hopes were dashed on Monday when US forces said they attacked missile sites in southern Iran and boats trying to lay mines.
North Sea Brent, the international benchmark that establishes pricing for a majority of globally traded petroleum, jumped more than three percent on Tuesday, although it still hovered below the $100 per barrel mark.
US benchmark West Texas Intermediate meanwhile was down around four percent in early trade.
Tehran and Washington have played down chances of striking a swift deal to end the war, which has pushed up energy prices and fuelled global inflation.
But top US diplomat Marco Rubio insisted on Tuesday that the blockaded Strait of Hormuz would reopen "one way or the other".
Asian markets were mostly lower, with Tokyo, Shanghai, Singapore, Kuala Lumpur, Manila, Jakarta, Taipei and Sydney all down while Hong Kong was flat.
Seoul was up more than 2.5 percent after opening at a record high over 8,000, as chipmakers, carmakers and shipbuilders continued to outperform. Bangkok and Wellington also advanced.
In Europe, London climbed while Paris and Frankfurt dropped at the open.
"The market's reaction remains almost mechanical at this point," said Stephen Innes, an analyst at SPI Asset Management.
"Every incremental diplomatic headline involving Iran gets treated like another liquidity injection directly into risk appetite.
"Yet beneath the surface, the actual negotiations still resemble two traders standing on opposite sides of the pit pretending the spread has narrowed while the hardest legs of the trade remain unresolved."
Investors will this week also be monitoring how the US Federal Reserve reacts to key consumer inflation data and its potential effect on interest rates.
Higher prices triggered by the US-Israeli war against Iran will limit the likelihood of interest rate cuts by the Fed to boost US growth, many economists have warned.
"Traders have already fully priced in another Federal Reserve rate hike by year's end, despite the arrival of Kevin Warsh as the new Fed chairman," Innes said.
Russia's war against Ukraine has also injected more geopolitical uncertainty, with Moscow saying on Monday it planned to launch more strikes on Kyiv following a major weekend assault.
Its warning included a call for foreign diplomats to flee the Ukrainian capital.
Rubio said on Tuesday that Washington remained ready to mediate in the war between Russia and Ukraine.
AFP