Oil prices were heading for their largest monthly rise on record on Tuesday while Asian equities were on course for their steepest monthly decline in six years, as a month of war in the Middle East stoked fears of entrenched inflation and slowing global growth.
Brent crude was up 0.24% at $113.05 a barrel, on track for a 56% monthly gain — the largest on record. US crude held near $102.98 a barrel, headed for a monthly rise of roughly 54%, the most in nearly six years. Gold rose 1.2% to $4,564.73 an ounce.
MSCI’s broadest index of Asia-Pacific shares outside Japan was set to fall more than 13% for the month — its sharpest decline since March 2020. Japan’s Nikkei was down 1.27% and poised to lose nearly 13% in March. South Korea’s Kospi was on course for a monthly drop of more than 18%, its worst since 2008.
“It appears markets have gone from just mechanically trading headlines into a little bit more of a fear mode, taking risk off the table,” said Vishnu Varathan, Mizuho’s head of macro research for Asia ex-Japan.
Sentiment improved slightly after the Wall Street Journal reported that President Donald Trump had privately told aides he was prepared to end the military campaign against Iran even if the Strait of Hormuz remained largely closed. Nasdaq futures rose 0.73%, S&P 500 futures gained 0.84%, and European futures edged higher.
Rates, bonds and the dollar
The inflation threat has forced a sharp reassessment of interest rate expectations. Markets now price the Federal Reserve keeping rates on hold for 2026, reversing forecasts of more than 50 basis points of cuts that were in place before the war began. Fed Chair Jerome Powell said on Monday the central bank could afford to wait and assess how the conflict affects the economy and prices.
US Treasury yields reflected the shift. The two-year yield was set to rise more than 40 basis points for the month — its largest monthly increase since October 2024 — while the benchmark ten-year yield had advanced around 36 basis points in March, its biggest monthly move since December 2024.
The dollar has emerged as one of the few clear safe-haven beneficiaries of the conflict, heading for its strongest monthly gain since July with a roughly 2.9% rise against a basket of currencies. The euro was down nearly 3% in March, sterling fell more than 2%, and the yen hovered near 159.63 per dollar, close to the psychologically significant 160 level.
Asian currencies have fared worst of all. The Indian rupee, Indonesian rupiah and Philippine peso have all fallen to record lows against the dollar this month.
“For the long Asian currencies positions, we have closed them out,” said Ang Ze Yi, senior portfolio manager for Asian fixed income at AllianzGI. “We still like them on a structural basis, but for now, we have neutralised and just want to let the volatility and uncertainty die down first.”
Thomas Mathews, head of markets for Asia-Pacific at Capital Economics, said inflation remained the more immediate concern, but warned that sustained high oil prices could eventually weigh on growth too. “If oil prices don’t fall back over the next few months, we will probably have to start thinking about growth as well,” he said.
(Reuters)