GLOBAL MARKETS: Asian stocks fall as Iran war keeps oil at $100, upends rate outlook

Asian stocks slumped on Friday, poised for a second straight weekly decline as fast-dwindling hopes of a resolution to the U.S. and Israel's war with Iran kept oil prices aloft, casting a shadow over global markets and spurring inflation fears.

The U.S. dollar has become the safe-haven of choice during the tumult, putting most other currencies under pressure. The dollar was set for a second consecutive week of gains and is up 2% since the war broke out at the end of February.

The yen JPY= hit its weakest level since July 2024 at 159.69 per U.S. dollar on Friday as Japan warned that it was ready to take action to protect against yen declines. It was last at 159.41. FRX/

Analysts said the bar for intervention is higher this time around as any intervention now could prove futile in the face of the relentless dollar buying.

In Asia, MSCI's broadest index of Asia-Pacific shares .MIAP00000PUS slipped 1%, on course for a 2.2% decline for the week. Japan's Nikkei .N225 fell 1.4%, while tech-heavy South Korean stocks .KS11 slid nearly 2%.

European futures STXEc1 point to a slightly higher open but may struggle to hold those gains on weak sentiment.

Oil prices remained close to $100 per barrel level, although they eased a bit on Friday after U.S. issued a 30-day license for countries to buy Russian oil and petroleum products currently stranded at sea.

Brent futures LCOc1 were last at $100.30 a barrel, while West Texas Intermediate crude CLc1 was at $95.37 a barrel. They were both hovering around $60 levels at the start of 2026.

"Headlines are coming at the market like water from a fire hose, which is impacting the price of oil, and consequently, financial markets," said Mitch Reznick, group head of fixed income at Federated Hermes.

"The question remains to what extent we are caught in the $80-plus range even as the headlines become banal with their frequency and contradictions."

With Iran stepping up attacks across the Middle East as its new Supreme Leader Mojtaba Khamenei vowed to keep the Strait of Hormuz shipping lane closed, investors are bracing for a prolonged conflict and higher oil prices.

The spectre of rising inflation has led markets to rapidly reprice what they expect from central banks this year, with traders now anticipating just 20 basis points of easing from the Federal Reserve compared to 50 bps of cuts priced in last month.

The selloff in global stocks and bonds shows no signs of easing. U.S. stocks fell sharply overnight and the two-year Treasury yields, which typically move in step with Fed interest rate expectations, scaled a six-month high on Thursday.

"With the possibility of higher oil prices still elevated, investors should be prepared for continued volatility and potentially further downside in the near term," said Vasu Menon, managing director of investment strategy at OCBC in Singapore.

SHIFTING RATES OUTLOOK

Jose Torres, senior economist at Interactive Brokers, said the impact of rising oil prices on corporate margins, inflation expectations, rate-cut prospects and yields is sparking volatility, leaving participants with few places to hide.

"Indeed, sinking optimism about Fed rate reductions amid strengthening cost pressures is weighing on traditional safe havens such as silver, gold, and government debt."

The two-year note US2YT=RR yield eased 3 bps to 3.730% after hitting its highest level since August 22 on Thursday. The yield has gained 35 bps in the two weeks since the war started.

The yield on the longer-dated 30-year bond US30YT=RR has risen 24 bps this month.

Investor focus will switch to a slate of policy meetings next week with the Fed, the Bank of Japan, the European Central Bank and the Bank of England all due to meet, with most expected to keep rates unchanged. The Reserve Bank of Australia is broadly expected to hike rates next week.

In currencies, the euro EUR= was steady at $1.15035, on course for a weekly decline of nearly 1%. The dollar index =USD was at 99.816, set for about a 1% weekly advance.

Gold XAU= was 0.4% higher at $5,101 per ounce on Friday but set for a 1% drop for the week. GOL/

-Ankur Banerjee/Reuters