Morning Bid: Stocks Dump More on Oil Shock Fears

Global Stocks Drop Sharply as Oil Shock Fears and Gulf Risks Weigh

Market Reactions and Key Developments

A look at the day ahead in European and global markets from Tom Westbrook and Wayne Cole

Wartime Selloff Intensifies in Asia

Markets' wartime selloff extended in Asia, with South Korea bearing the brunt of a flight from risk in the face of a potentially prolonged oil shock. [MKTS/GLOB]

By mid-session the KOSPI - down almost 13% at one point - had shed 8% and two-day losses were the largest since 2009 as panic hit what had been one of the best trades of the year.

Impact on Major Asian Markets

Heavy selling also swept through Japan, where the Nikkei was down 3.7% and Taiwan stocks dropped 3.6%. Buyers, in what had been a crowded trade, were few. Thailand led emerging-market losses with a 7.7% slump. [.T]

Much of Asia imports its energy through the Strait of Hormuz and faces an extra hit to energy costs via a stronger dollar.

US Response and Market Sentiment

There had been some relief in markets late in New York on Tuesday when Trump posted he had ordered the U.S. International Development Finance Corporation (DFC) to provide political risk insurance and financial guarantees for tankers in the Gulf, and might even use the U.S. Navy to escort shipping.

Concerns Over Policy Implementation

However, the fact the administration had not thought about this and set it up before attacking Iran did not exactly instil confidence. Details were also lacking and analysts saw many problems ahead.

While insurance was provided in the 1987 Iran/Iraq war it took considerable work to get under way and was limited in scope, certainly nothing like the scale needed to insure the hundreds of tankers moving through the Strait of Hormuz. The vast majority of these tankers are also not U.S.-owned or flagged.

Challenges for DFC and US Navy

It is also far from clear the DFC has the funds to cover such risks, or the insurance expertise to assess them. Such cover would also likely be challenged in court, as most everything is in the United States.

As for the U.S. Navy escorting shipping: did anyone ask the Navy first? The strait is narrow and a nightmare to navigate at the best of times, and all with a hostile Iran looming just kilometres to the north. There is a good reason the already vessel-limited Navy has not gone near the area in any size.

Other Market Pressures

On top of all that, cracks are showing in private credit and fear of AI disruption is swirling around the software sector.

Private Credit Withdrawals

Blackstone's flagship private credit fund faced a surge in withdrawals in the first quarter, with investors yanking a net $1.7 billion, a filing showed on Monday.

Key Events to Watch

Key developments that could influence markets on Wednesday:

• News: Iran war developments
• Markets: Oil price moves
• U.S. economic data: ISM services survey and ADP payrolls

(Editing by Jacqueline Wong)