Asia stocks drop, set for sharpest weekly drop in six years

MSCI’s broadest index of Asia-Pacific shares outside Japan last traded 0.4% lower and was set ​to drop 6.6% for the week, which would mark its sharpest weekly decline since March 2020

Asia stocks dropped on Friday and were headed for their sharpest weekly decline in six years ​while oil prices were poised for their biggest jump in four in a turbulent week for global markets as the war in the Middle East ‌showed few signs of easing.

MSCI’s broadest index of Asia-Pacific shares outside Japan last traded 0.4% lower and was set ​to drop 6.6% for the week, which would mark its sharpest weekly decline since March 2020.

Nikkei was down 0.5% and on track for a 6.5% weekly loss, while Kospi ‌was also ⁠headed for its largest weekly decline in six years with a 10.5% slide.

The market rout this week sent even high-flying technology stocks and indexes tumbling, as investors scrambled to book profits to cover losses elsewhere.

Investors sought the safety of cash as they sobered up to the fact that the U.S.-Israel war on Iran could drag on longer than initially anticipated.

They also moved to price in more hawkish rate expectations from central banks, spooked by the prospect of a resurgence in inflation if the spike in energy prices persists.

The range of plausible outcomes of ​the war has expanded to include both the possibility of an exceptionally constructive resolution and a highly destructive one, said Daleep Singh, ⁠chief global economist at PGIM Fixed Income.

Markets are being asked to price a much fatter set of tails with very little reliable information about the likelihood of each, ​or the path in between, he added.

The war has thus far had the biggest impact on oil prices, with Brent crude futures now trading almost $83 per barrel, having been as low ​as $69 just about a week ago. U.S. crude rose to a 20-month high earlier this week.

Both are set to clock a gain of more than 15% for the week, their largest since February 2022.

The most market-relevant risk lies in severe escalation or direct infrastructure damage across key Gulf producers, which would likely produce sustained upward pressure on oil, feed into higher headline inflation, tighten global ​liquidity, and materially raise recession risks, said Klay Group’s senior investment team.