Mid East tension hits stocks, hopes for containment stem losses

TOKYO

Equities retreated on April 15 after Iran ramped up Middle East tensions by launching a barrage of missiles and drones at Israel over the weekend, fuelling fears of a wider conflict in the volatile region.

However, analysts said there was hope among traders that the crisis could be contained.

That sliver of optimism helped drag oil prices lower.

Saxo's Redmond Wong said: "All eyes remain on whether there will be any response from Israel and markets will likely be volatile in the day ahead to any geopolitical headlines."

Asian markets mostly fell yesterday, though they pared their initial big losses.

Tokyo, Hong Kong, Seoul, Sydney, Wellington, Singapore, Mumbai, Taipei and Manila were all in the red.

London opened lower while Frankfurt and Paris rose.

"The muted market response likely stems from the highly intricate sentiment in the market at this stage," said IG Markets' Hebe Chen.

"Market participants are certainly not giving up hope that the past weekend's events were just a one-off occurrence, while holding their breath for what could happen next."

With worries about an escalation subsiding for now, oil prices dipped, though observers warned they could spike back above $100 if the crisis worsens.

"This war may move down the escalation ladder if the Israeli government follows the advice of the White House and forgoes retaliatory action," said Helima Croft at RBC Capital Markets.

The broadly risk-off mood sent the dollar up against its major peers while dimming hopes for U.S. interest rate cuts helped it push to a new 34-year high against the yen, putting Japanese officials in the spotlight after they said they were ready to step in to support their currency.