Global financial markets swung back into a defensive posture on Thursday as renewed military clashes between the United States and Iran triggered a fresh flight to safety, dragging down equities and cryptocurrencies alike. The MSCI Asia-Pacific ex-Japan index fell 1.5%, Japan’s Nikkei 225 slid 1.9%, and South Korean shares plunged as much as 2.6%, following a 0.7% overnight drop in the S&P 500 on Wall Street.
Geopolitical turmoil dominated trading sentiment, with Westpac analysts noting, “Financial markets shifted back into a risk-off mode as the US and Iran exchanged fire again.” The escalation overshadowed stronger-than-expected US ISM services data for May, which had hinted at robust business orders and inventory rebuilding in anticipation of supply shortages and higher prices tied to the conflict. Despite the data, investors fixated on the immediate danger of wider hostilities, fueling demand for traditional safe havens like the yen and gold.
In the currency arena, the Japanese yen firmed to 159.88 per dollar, pulling away from the 160 level seen as a possible trigger for intervention. Bank of Japan Governor Kazuo Ueda signaled a high likelihood of a rate increase this month, adding to the yen’s appeal. The US dollar index held at 99.44 after a three-day advance to its strongest since April 7. The yield on the 10-year Treasury edged down 1.4 basis points to 4.473%, while gold climbed 0.9% to $4,473.61 an ounce.
Oil prices, however, slipped after Israel and Lebanon agreed to implement a ceasefire, with Brent crude shedding 1.3% to $96.59 a barrel. Yet the truce remains fragile, as earlier pacts collapsed. Meanwhile, tensions between Washington and Tehran showed no sign of abating. Reports indicated Iran struck Kuwait International Airport earlier in the week, and US Central Command confirmed it had intercepted Iranian ballistic missiles and drones before conducting “self-defense strikes” on Qeshm Island. Negotiations to end the conflict and reopen the Strait of Hormuz have made scant progress, keeping the risk of persistent oil-driven inflation alive.
US equity markets were sharply divided. While the Dow Jones Industrial Average surged more than 500 points, lifted by healthcare stocks, the S&P 500 fell about 0.28% and the tech-heavy Nasdaq dropped roughly 1%. The catalyst for the tech weakness was a steep 14% plunge in Broadcom shares after the AI chipmaker missed fiscal second-quarter revenue estimates and left its 2027 sales forecast unchanged—a rare signal of slowing momentum. The selloff ricocheted across the semiconductor sector, with AMD, Qualcomm, Micron, and Marvell each losing 1% to over 5%, and the VanEck Semiconductor ETF sliding more than 3%. CrowdStrike also tumbled 8% on disappointing revenue guidance.
Fresh US labor market data added to the cautious mood. Initial jobless claims rose to 225,000, the highest since early February and above consensus expectations. First-quarter productivity increased only 0.3% (below forecasts), and unit labor costs rose 1.8%. The figures arrive ahead of Friday’s monthly employment report and the Federal Reserve’s upcoming policy meeting under new Chair Kevin Warsh. LSEG data shows traders pricing in a 75% chance of a 25-basis-point rate hike before year-end. Elsewhere, investor attention turned to SpaceX’s investor roadshow ahead of its record-possible $75 billion IPO, which could value the firm at $1.75 trillion.
The broader shift toward caution has not spared digital assets. Cryptocurrencies, which often correlate with risk appetite, were swept lower as the geopolitical storm intensified. With haven flows strengthening the dollar and yen, and uncertainty clouding the inflation and rate outlook, crypto markets faced renewed selling pressure. While no single coin stands out as uniquely targeted, the entire asset class is bearing the weight of a macro environment increasingly hostile to speculative plays. Until there is clarity on the US-Iran front, traders expect heightened volatility and a continued defensive stance across equities, bonds, and crypto.
