Chinese mainland stocks and the Hong Kong stock exchange saw notable declines during Thursday's trading, as a sense of pessimism prevailed among investors following U.S. President Donald Trump's televised address. The absence of a "clear timeline" for concluding military operations in Iran weakened market sentiment, especially after Trump confirmed that strikes would continue for weeks to come, dispelling hopes for a quick resolution to the conflict that has overshadowed global supply chains and vital energy routes.
By mid-session, the Shanghai Composite Index recorded a decline of 0.53 percent, while the CSI 300 index of leading stocks lost 0.74 percent of its value. In Hong Kong, the drop was sharper, with the Hang Seng Index falling by 1.1 percent, led by the technology sector, which suffered a significant loss of 2.2 percent amid fears of escalating geopolitical tensions and their impact on financial market stability in the region.
Event Details
The semiconductor sector was among the biggest losers in the morning session, with sub-indices for this sector declining by between 2.3 and 2.5 percent due to a decrease in risk appetite among investors. Compounding the situation were Trump's aggressive statements regarding targeting Iranian power stations if no agreement is reached, indicating the possibility of prolonged closure of the Strait of Hormuz, which poses the greatest challenge to oil flows to Asia.
In light of these developments, oil prices surged by more than 5 dollars, raising concerns about a sustained disruption of supplies. This increase directly impacted the air transport sector in China, where major airlines, including Air China, announced an increase in additional fuel charges starting from April 5, in response to the sharp rise in jet fuel prices due to the ongoing war, putting additional pressure on the recovery of the travel sector and China's economic growth.
Background & Context
The U.S. dollar regained its upward momentum against major currencies during Thursday's trading, ending two days of decline, after Trump's speech shattered investors' hopes for an imminent "ceasefire" policy in the Middle East conflict. The ambiguity left by the speech regarding the timeline for military operations redirected capital flows towards the greenback as the preferred safe haven in times of geopolitical crises.
The dollar index, which measures the performance of the U.S. currency against a basket of six major currencies, rose to 99.925 points immediately after the speech. This movement came at a time when analysts and experts began to grasp the reality that the conflict may escalate before it begins to recede, especially with Trump's confirmation of continued military strikes on Iranian targets over the next three weeks, which poses significant risks of a tangible slowdown in the global economy and exacerbates energy supply risks.
Impact & Consequences
In the currency market, the rise of the dollar negatively impacted other major currencies; the euro fell to levels of 1.1554 dollars, and the British pound dropped to 1.3254 dollars, both losing gains made in recent sessions. Risk-linked currencies, such as the Australian and New Zealand dollars, were the most affected, recording declines of 0.6 percent, while the Japanese yen remained under pressure, although it stayed away from the 160 level against the dollar, a threshold that Japanese authorities are monitoring for potential intervention.
As the impact of the speech waned, market attention began to shift towards the upcoming U.S. non-farm payroll report scheduled for release on Friday, with investors awaiting March data that could reshape monetary policy expectations. Experts believe that any sharp deterioration in the labor market could revive hopes for interest rate cuts by the Federal Reserve this year, a prospect that had recently faded due to inflationary pressures stemming from soaring oil prices linked to the war.
Regional Significance
Global markets were once again hit by waves of turmoil during Thursday's trading, as stock indices declined and oil prices rose, coinciding with the dollar regaining its status as a preferred safe haven. This dramatic shift followed Trump's televised address, which dashed investors' hopes for a swift resolution to the conflict in the Middle East, confirming the continuation of military operations against Iran for weeks to come, thus returning markets to a state of caution and vigilance.
Trump's speech, characterized by a clearly aggressive tone, raised fears of a deterioration in the ground situation, especially after he announced that the United States would carry out "very severe" strikes over the next two to three weeks. Analysts noted that the absence of a clear timeline for ending the conflict and the possibility of "boots on the ground" prompted investors to take defensive positions, particularly with a long weekend approaching, leading to the evaporation of the optimism that had prevailed in recent sessions regarding a near resolution of the crisis.