Persistent Middle East conflicts have escalated, with Iran intensifying attacks on energy infrastructure in the Persian Gulf, prompting a strong rebound in crude oil prices to over $100 per barrel following a recent correction. Concurrently, optimistic projections for NVIDIA's artificial intelligence prospects provided temporary support for Asian technology stocks, though this dual trend fails to mask deeper, multifaceted risks in the market.
On March 17, international crude oil prices surged rapidly, with WTI crude futures expanding gains to 5% and breaking through the $97 per barrel mark. This movement followed Iran's ignition of a major gas field within the United Arab Emirates, further exacerbating the already tense global fuel supply situation. Equity index futures indicated European markets might open 0.1% lower, while U.S. major index futures showed slightly larger declines. The U.S. dollar index climbed to 100, marking a 0.19% increase for the day.
The Asia-Pacific market experienced brief, atypical movements. Jensen Huang projected on Monday that AI chip sales would surpass $1 trillion by the end of 2027, an optimistic outlook that buoyed Asia's technology-related sectors. South Korea's KOSPI index rose 2.4% by midday, and Japan's Nikkei 225 gained 0.4%. However, Charu Chanana, Chief Investment Strategist at Saxo Markets, cautioned that it is premature to conclude the market has fully shifted to a risk-on stance.
Market focus has swiftly turned to central bank actions. The Reserve Bank of Australia led the way on Tuesday by implementing a second consecutive interest rate hike and warning that the Iran conflict poses a dual threat to inflation and economic growth. The Federal Reserve's interest rate decision on Wednesday is highly anticipated, with markets watching closely whether inflationary pressures from rising oil prices will trigger a hawkish pivot. Bob Savage, Head of Markets Strategy at BNY, noted in a report, "As the war with Iran persists, oil prices are dominating market sentiment, with developments in the Strait of Hormuz steering market direction. The core question this week is how central bank officials will balance these factors."
South Korea's KOSPI advanced 2.4% by midday, and the Nikkei 225 increased 0.4%. SK Hynix and Samsung Electronics rose 2.26% and 1.8% respectively, while Taiwan Semiconductor Manufacturing Company (TSMC) gained 1.6%.
Equity index futures suggested European markets might open 0.1% lower, with U.S. index futures declining slightly more.
The U.S. dollar index touched 100, up 0.19% on the day.
The yen approached the 160 level against the U.S. dollar.
U.S. Treasuries declined across the board, with the 10-year yield rising 2 basis points to 4.23%.
International crude oil surged, with WTI futures expanding gains to 5%, breaking above $97 per barrel to trade at $97.113.
Gold recorded its first gain in five sessions, with spot gold rising 0.4% to $5,026.60 per ounce. Spot silver surpassed the $82 mark, expanding intraday gains to 1.8%.
Aluminum prices on the London Metal Exchange increased by 0.9% at one point, reaching $3,415 per metric ton. Copper rose 0.2%, and zinc edged up 0.1%.
Bitcoin, supported by ongoing institutional inflows, held above $74,000, briefly approaching $74,500.
**Strait of Hormuz: Global Energy Chokepoint Nearly Paralyzed** Transit through the Strait of Hormuz has nearly stalled, though sporadic vessel passages continue, with a wartime peak in traffic associated with Iranian-linked vessels. According to Bloomberg-compiled ship-tracking data, the number of Iranian-linked vessel transits jumped to 12 in the past 24 hours, the highest since the conflict began.
Former President Trump reiterated calls for other nations to assist in securing the strait and threatened to expand strikes on Iran's key export hub, Kharg Island. However, Bloomberg reported a generally lukewarm international response to Trump's appeals, with few public declarations of support.
Rebecca Babin, Senior Energy Trader at CIBC Private Wealth Group, noted that predicting oil prices has become significantly more challenging as attacks on critical Persian Gulf infrastructure continue. Analysts at Maybank added in a report, "As long as progress toward restoring normal traffic flow through Hormuz remains limited, high oil prices will continue to threaten inflation, corporate profit margins, and central bank policy expectations."
**AI Chip Optimism Boosts Tech Stocks, But Sustainability Questioned** Jensen Huang showcased a series of new products on Monday designed to enhance the speed and efficiency of AI models, alongside a $1 trillion chip sales forecast, which quickly resonated in Asia-Pacific markets. Memory chip makers SK Hynix and Samsung Electronics rose 2.26% and 1.8% respectively, while TSMC advanced 1.6%.
Notably, the simultaneous rise in Asian equities and oil prices is unusual—since the war began, the two have typically moved inversely, reflecting the region's high exposure to Middle East energy disruptions. Bloomberg strategist Garfield Reynolds noted in an analysis:
"Substantial oil price gains put equities in a bind—pressure exists either way. The conflict risks driving yields persistently higher, which also implies more pain for stocks."
**Central Bank Decision Week: Dilemma Under Dual Inflation and Growth Pressures** The Reserve Bank of Australia acted first this week, delivering a second consecutive rate hike and explicitly pointing to inflation risks from the energy conflict, setting a tone for other central banks. Market attention is now intensely focused on the Federal Reserve—there is widespread concern whether a scenario of rising oil prices coupled with slowing economic growth could force the Fed to signal a hawkish shift. Additionally, Bank Indonesia will also decide on rates this week, with moves from the European Central Bank and Bank of England closely monitored.
The yen's movement is also drawing market attention. The yen nearing 160 against the dollar reflects investor concerns over Japan's high reliance on energy imports. Traders expect the Bank of Japan to hold rates steady this week, with the next 25-basis-point hike anticipated to be delayed until July. Ashwin Binwani, Founder of Alpha Binwani Capital, who holds a short yen position, stated:
"The yen is heading to 160 now, and the BOJ cannot stop the depreciation without raising rates. If oil prices don't retreat in the next three months, the yen could fall to 165."
Phillip Nova's Priyanka Sachdeva noted in a report that energy market focus remains on how long the conflict will last, when the strait will return to normal transit, and the long-term impact on Persian Gulf oil and gas infrastructure.
**Aluminum Rebounds as Middle East Smelter Output Risks Accumulate** Aluminum prices bottomed out and rose after two consecutive days of declines. The near-total blockade of the Strait of Hormuz is not only hindering smelters from shipping out finished metal but also cutting off inbound raw material supplies, leading several companies to reduce output. LME aluminum prices increased by 0.9% at one point to $3,415 per metric ton. Copper rose 0.2%, and zinc gained 0.1%.
The aluminum market faces additional disruptions: Mozambique's largest single aluminum smelter supplying Europe has shut down; and Guinea, the world's top bauxite producer, is considering restricting raw material exports as early as this year. This news propelled alumina futures on the Shanghai Futures Exchange to surge 4.8% in a single day, hitting a nearly seven-month high. Last week's spike to a four-year high for aluminum prices underscores the market's high sensitivity to supply disruptions from the Middle East, which accounts for about 9% of global production.
In other markets, gold rose for the first time in five sessions, with spot gold up 0.4% to $5,026.60 per ounce. Silver also advanced 0.65% to $81.24 per ounce. Bitcoin, supported by sustained institutional inflows, held above $74,000, briefly nearing $74,500. U.S. Treasuries declined across the board, with the 10-year yield rising 2 basis points to 4.23%. The U.S. dollar stabilized on Tuesday after recording its largest single-day drop in over a month during the previous session.
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