EBC Markets Briefing | Nikkei index plummets; crude oil on a roll

A selloff in stocks deepened on Wednesday, as the conflict in Iran continues to rage on for a fourth day. The Nikkei 225 index plunged more than 2%, while the yen was also under pressures.

Tehran retaliated with missile barrages after the killing of Supreme Leader Ali Khamenei over the weekend and Trump signalled that the assault on Iran could continue for weeks.

Strategists at Barclays warned against quickly buying any dip. Investors have grown accustomed to geopolitical flare-ups that fade fast, but this episode risks lasting longer, they said.

The majority of large EM economies are net oil importers, such as China and India, and energy remains a meaningful share of both their import bills and inflation baskets.

Market expectations for Japanese bond yields and the BOJ's next rate increase have been thrown into disarray. Annual core inflation in Tokyo slowed in February, running below the 2% target for the first time in 16 months.

Surging energy costs could prompt faster monetary normalisation. Furthermore, Japan is lagging behind in renewable energy and EV adoption, which leaves manufacturing activity more vulnerable.

The Nikkei index was in free fall amid souring market sentiment. The base scenario is that the decline will likely deepen in the immediate term until the support around the 56,500 area.

Asset recap

As of market close on 2 March, among EBC major products, UK Brent Crude led gains. Threats to shipping through the Strait of Hormuz heightened fears of supply disruptions from the key Middle East producing region.

Qatar said Monday it halted LNG production due to attacks by Iran on two key operating facilities, as the Islamic Republic widened retaliatory strikes to target regional energy infrastructure of its Persian Gulf neighbours.

TE Connectivity has finalised a strategic asset deal with Phoenix Contact E-Mobility. The US-based supplier is acquiring key parts of the company's e-mobility unit, including the business for charging inlets used in electric vehicles.

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