Asian Stocks Rise as Oil Shock Fears Subside

SadaNews - Asian stocks extended their gains, with oil trading below $90 a barrel, following a report about the potential release of oil reserves to calm rising energy prices, which boosted market confidence.

The "MSCI Asia-Pacific Index" rose by 1.9%, marking its second consecutive day of gains. U.S. stock index futures also climbed by 0.5% after the "Wall Street Journal" reported that the "International Energy Agency" proposed the largest drawdown from oil reserves in its history.

Brent crude initially fell by about 1% on Wednesday after dropping nearly 11% in the previous session.

Shares in technology companies, seen as less affected by the war in the Middle East, surged, with a regional index for the sector up by 4%. Companies including "Tencent Holdings" were among the winners.

Wider market confidence was also bolstered by an 8% increase in shares of "Oracle" in after-hours trading, following the announcement of better-than-expected revenues.

South Korea is exploring options to alleviate pressures from the Iran war.

Kuhn Gu, Head of Asian Research at "Australia and New Zealand Banking Group", stated: "The markets remain on edge due to developments in the Middle East."

He added: "Therefore, any news about the release of oil from strategic reserves, whether from the International Energy Agency, the United States, or the G7, provides some short-term relief for the markets."

Sharp Volatility Due to the War in Iran

Markets remained volatile after oil recorded its largest daily drop in four years on Tuesday, amid mixed signals from U.S. President Donald Trump's administration regarding the war in Iran.

Volatility surged after U.S. Energy Secretary Chris Wright accidentally published a message stating that the U.S. Navy had escorted an oil tanker through the Strait of Hormuz, only to delete it later. Subsequently, the White House acknowledged that no such operation had occurred.

Joshua Crab, Head of Asia-Pacific Equities at "Robeco" in Hong Kong, believes that the initial oil shock has been priced in, and the base scenario for oil prices is trending downwards, as there is a "strong political will to try to achieve that."

Garfield Reynolds, Head of the "Bloomberg Markets Live" team, stated: "Unless shipping traffic through the Strait of Hormuz quickly returns to pre-war levels, energy prices will remain high, as the continued war and the effective closure of the strait will choke supplies and force producers to further cut production."

Expectations of More Market Volatility

The war, now in its second week, shows no signs of de-escalation, as U.S. President Donald Trump warned Iran against laying mines in the vital energy maritime corridor, following media reports indicating that it might be preparing to do so or may have already begun.

Brent crude prices have risen since the start of the year with the effective closure of the strait, through which about one-fifth of global oil flows typically pass, forcing producers to scale back production. The drop on Tuesday resulted from expectations that world leaders would intervene before the worst-case scenario of a supply shock materializes.

Fuad Razaqzada of "Forex.com" said: "While traders welcomed the sudden drop in oil prices, the geopolitical backdrop remains far from stable, leaving the markets vulnerable to further volatility."

He added: "Ultimately, the most crucial factor for the markets will be whether energy supplies from the region will resume normally."

In other sectors of the market, gold continued to gain from the previous session, trading above $5,200 an ounce. Treasury bonds rose, with the yield on the benchmark 10-year bond dropping by one basis point to 4.14% on Wednesday.

China was among the markets that showed unexpected resilience, with stocks there declining at a slower pace compared to global markets since the onset of the conflict, and the yuan remained stable against the dollar, with government bond yields not fluctuating much.

Focus Shifts to U.S. Inflation Data

With "Wall Street" disrupted by oil volatility, traders prepared for the upcoming inflation data, following the latest jobs report which cast doubt on the belief that the labor market is heading towards stabilization.

The consumer price index report on Wednesday is expected to show that the core inflation gauge, which excludes volatile food and energy costs, rose by only 0.2% last month. This may indicate a reduction in price pressures before the outbreak of the Iran war, which introduced a new level of uncertainty regarding inflation prospects.

Although the report on the release of reserves may have alleviated some temporary pressures on the markets, it is wise to maintain hedges for now, according to John B. Liu, co-founder and chief portfolio manager of the hedge fund "Ten Capital Investment Management" in Sydney.

She added: "It is important to have hedges, including investment in some energy companies, because the future outlook is extremely uncertain."