Markets fall as Iran-Israel tensions rise

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

The final quarter of the year is underway, and the sense of caution that characterized its opening on Tuesday could not be further removed from the excitement and optimism that marked the end of the third quarter 24 hours earlier.

Investors fled risky assets such as safe-haven U.S. Treasuries, gold and the dollar as Iran fired a barrage of ballistic missiles at Israel on Tuesday in retaliation for Israel’s campaign against Tehran’s Hezbollah allies in Lebanon.

The S&P 500 and global stocks had their worst day in a month, the U.S. 10-year Treasury yield posted its steepest drop in a month and oil rose 3% after rising 5% at a given moment.

In addition to escalating tensions between Israel and Iran, the sense of gloom hanging over markets on Tuesday was heightened by a sharp drop in a closely watched model’s estimate of US GDP growth.

The Atlanta Fed’s GDPNow model estimate for U.S. GDP growth for the third quarter on Tuesday was cut to 2.5 percent from 3.1 percent last week. The six-tenths of one percent drop was the biggest drop since third-quarter tracking estimates were released in late July.

This will set the tone for Asian markets on Wednesday. Chinese markets are closed for Golden Week and the main economic releases will be data on inflation and manufacturing purchasing managers’ index from South Korea and consumer confidence from Japan.

Although oil rose sharply on Tuesday, the deeply negative year-over-year oil price is a major reason why inflation around the world is cooling, and much faster than many economists and policymakers expected.

In many cases, such as the Eurozone, inflation is already at or even below the 2% target that many central banks are aiming for. Figures from Seoul on Wednesday are expected to show that annual consumer inflation in South Korea eased to 1.9 percent in September from 2.0 percent in August.

That would be the lowest, and also the first time below that 2% threshold, since March 2021.

Markets in Japan should be slightly calmer on Wednesday, even as Nikkei futures point to a more than 1 percent drop at the open as the dust begins to settle from major political upheavals in recent days.

Investors are getting used to what to expect from new Prime Minister Shigeru Ishiba, once considered a monetary policy hawk, who now appears to have softened his stance.

He said on Tuesday that he hoped the Bank of Japan would maintain loose monetary policy “as a trend” and that his administration would continue the economic policy of former Prime Minister Fumio Kishida and “ensure that Japan fully exits deflation.”

The story continues

Here are the key developments that could provide more direction for Asian markets on Wednesday:

– Inflation in South Korea (September)

– South Korea Manufacturing PMI (September)

– Japanese Consumer Confidence (September)

(Reporting by Jamie McGeever)