Brent crude breaches $100 barrier

Brent crude reached $101.28 per barrel Thursday, marking a sharp rise from recent levels. The price increase extended gains from Wednesday, when the benchmark first crossed the $100 threshold. This move has triggered a broad sell-off in Asian equity markets. Investors are reacting to renewed hostilities in the Middle East that threaten global energy supplies. The uncertainty has led to a reassessment of inflation risks and monetary policy trajectories.

The conflict involves exchanges of strikes between the US and Iran around the Strait of Hormuz. Saudi Arabia is simultaneously engaged in a conflict with Yemeni rebels. These events have created a dual bottleneck in critical oil shipping routes. Markets are pricing in the likelihood that the crisis will persist. This environment supports the current rally in oil prices and pressures risk assets.

Oil prices break key levels

Brent crude peaked at $101.94 earlier this week before settling near $101.28. West Texas Intermediate reached a high of $97.79, its highest level since May. The rally represents a gain of over 20 percent in less than a week. This surge is driven by reports of attacks on vessels passing through the Strait of Hormuz. Iran announced an expansion of a no-go zone outside the waterway, further restricting passage.

The US has responded by maintaining a counter-blockade of Iranian ports. Saudi Arabia is routing oil through the Red Sea’s Bab al-Mandab chokepoint as an alternative. However, Houthi rebels are striking oil facilities in the kingdom. This dual threat to supply routes has created significant volatility. Traders are adjusting positions to account for the increased risk of supply disruptions.

Inflation fears drive equity sell-off

The rise in oil costs has stoked speculation that central banks will hike interest rates. The Federal Reserve is expected to consider tightening policy at its next meeting. The European Central Bank is tipped to lift borrowing costs on Thursday. US diesel prices have already reached a record of almost $6 per gallon. These factors are compelling investors to reduce exposure to equities.

Asian markets reflected this sentiment with broad declines. The Nikkei 225 in Tokyo fell 0.8 percent to 64,597.46. The Hang Seng Index in Hong Kong dropped 1.2 percent to 24,980.30. The Shanghai Composite decreased 0.3 percent to 3,939.11. Other markets including Seoul, Sydney, and Singapore also recorded losses. The sell-off aligns with declines seen in US and European indexes earlier in the week.

Market data and analyst views

Currency markets showed mixed reactions to the geopolitical tensions. The dollar strengthened against the yen, with the pair trading at 153.35. The euro rose slightly against the dollar to $1.1639. The pound increased against the dollar to $1.3559. These moves reflect shifting risk appetites and capital flows. Investors are seeking safe havens amid the uncertainty in energy markets.

Neil Wilson at Saxo Markets noted that September is historically a weak month for Wall Street. He indicated that investor focus is shifting from earnings to macroeconomic factors. Central bank policies and inflation are now the primary drivers of market direction. This shift suggests a potentially rockier period for equities. The situation is consistent with the analysis provided by GN markets/policy (en-US). Corporate news also contributed to the decline, with Nintendo shares falling 5.5 percent after a game showcase.