Asian markets experienced mixed results on Wednesday, reflecting a day of contrasts as different factors influenced the region’s financial landscapes. Tokyo’s Nikkei 225 faced a significant drop, while Hong Kong’s Hang Seng index surged, even as tensions escalated sharply in the Middle East. The rise in oil prices, driven by the conflict between Iran and Israel, heightened concerns about potential disruptions in global oil supplies, overshadowing more positive economic news, such as an unexpected rise in U.S. job openings for August, a sign that the American labor market remains resilient.
Market activity was relatively subdued due to the closure of mainland Chinese markets for a weeklong national holiday. The Nikkei 225 in Tokyo fell 1.7%, closing at 37,993.18, following news that Japan’s ruling Liberal Democratic Party had chosen Shigeru Ishiba as the new leader of the government. Ishiba replaced Fumio Kishida, who stepped down on Tuesday. The transition added pressure on Ishiba, with the combination of a weaker yen and rising energy prices creating further challenges for his administration, which now faces the task of revitalizing the Japanese economy. The dollar gained strength against the yen, trading at 143.82 yen, up from 143.57 yen the previous day.
In contrast, Hong Kong’s Hang Seng index soared 2.3% to 21,615.87, buoyed by investor optimism. Recent moves by Beijing to stimulate the Chinese economy through policies designed to support the troubled property sector and revitalize financial markets boosted sentiment. Elsewhere in the region, Australia’s S&P/ASX 200 remained flat at 8,208.50, while South Korea’s Kospi dropped 0.5% to 2,579.63.
In the U.S., stocks retreated from their record highs set earlier in the week. The S&P 500 fell by 0.9%, closing at 5,708.75, while the Dow Jones Industrial Average declined 0.4% to 42,156.97, and the Nasdaq composite saw a sharper loss of 1.5%, ending at 17,910.36. The market downturn coincided with a rise in oil prices as geopolitical tensions intensified in the Middle East. Iran’s missile attack on Israel prompted warnings of a significant escalation in the conflict. While the attack did not cause immediate damage to Israel, concerns about its implications for the region’s oil production spurred volatility in the energy markets.
Although Israel is not a major oil producer, Iran is, and any expansion of the conflict could affect oil supplies from neighboring countries. As a result, U.S. crude oil prices surged as much as 5% before settling 2.4% higher by the end of the day. Similarly, Brent crude, the global benchmark, jumped 2.6%. By early Wednesday, U.S. crude oil prices had risen by $1.15 to $70.98 per barrel, and Brent crude increased by $1.10 to $74.66 per barrel.
Energy stocks were among the biggest gainers on Tuesday. ConocoPhillips saw its share price climb 3.9%, while Exxon Mobil rose 2.3%. Defense contractors also enjoyed strong gains, with Northrop Grumman up 3% and RTX, a key partner in the development of Israel’s Iron Dome air defense system, rising 2.7%. The Iron Dome is a vital component of Israel’s missile defense, particularly in the current conflict with Iran. Despite gains in the energy and defense sectors, the broader U.S. market saw most shares decline.
The S&P 500 had reached its 43rd all-time high of the year on Monday, driven by optimism that the U.S. economy could sustain growth despite challenges such as a cooling job market. Investors remain hopeful that the Federal Reserve’s recent interest rate cuts—its first in more than four years—will provide enough stimulus to prevent a significant downturn. The Fed has signaled it intends to implement additional rate cuts over the coming year, which has bolstered market confidence.
However, concerns remain over whether these measures will be sufficient to counteract the impact of the Fed’s earlier policies of keeping interest rates at a two-decade high in an attempt to combat inflation. A report released on Tuesday indicated that U.S. manufacturing activity weakened in September, performing worse than expected. This raised further concerns about the health of the U.S. economy, which could face additional strain from a potential strike by dockworkers at 36 ports across the eastern U.S. A labor dispute over automation threatens to disrupt supply chains, which could, in turn, push inflation higher. Nonetheless, supply chain experts predict that consumers will not immediately feel the impact, as retailers have already stocked up on goods, including holiday items.
There was some encouraging news from Europe, where inflation among the 20 nations using the euro fell below 2% in September, marking the first time in more than three years that inflation had eased to such a level. This could provide the European Central Bank with more flexibility to cut interest rates sooner than expected, providing further support for the European economy.