Markets on edge as Trump threatens strikes on Iranian infrastructure

SINGAPORE: Oil prices rose while stocks were mixed on Monday (Apr 6) after United States President Donald Trump warned of "hell" for Iran unless it reopens the Strait of Hormuz by his self-imposed deadline, but a report of a push for a ceasefire appeared to ease some nerves.

Trump's repeated threats to destroy civilian infrastructure, including power plants and bridges, if the vital waterway is not open by Tuesday have put traders on edge for reciprocal attacks by Iran on targets in the Gulf states.

With liquidity thin as many countries around the region observed the Easter Monday and Tomb Sweeping Day holidays, S&P 500 e-mini futures fluctuated between gains and losses, down 0.1 per cent, while MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.4 per cent. 

The Nikkei 225 rose 0.6 per cent, as South Korea's Kospi advanced 1.4 per cent.

Investors took some confidence after Axios reported that the US, Iran and a group of regional mediators are discussing the terms for a potential 45-day ceasefire that could lead to a permanent end to the war, citing four US, Israeli and regional sources with knowledge of the talks.

Brent crude futures opened higher before paring gains, rising 1.2 per cent to US$110.29 on the potential supply disruption. 

"The markets are obviously nervous," said Sim Moh Siong, currency strategist at OCBC in Singapore. 

"We've seen many of these deadlines being pushed out, and it's difficult to tell to what extent this deadline is going to stick, or will it be pushed out too," he added.

"There was a lot of de-escalation hope, but some of this hope has fizzed out over the weekend in the ramping up of threats to blow up Iranian power plants and bridges."

Markets looked through an agreement on Sunday by members of the OPEC+ group to raise its output quotas by 206,000 barrels per day for May, as several major oil producers behind the Strait of Hormuz have sustained damage to oil production facilities and transport infrastructure since the war started.

"It is puzzling how well Asian equity markets are trading today, despite the threat of an imminent escalation in the war," said Mark Matthews, head of research for Asia at Bank Julius Baer in Singapore.

"There are two plausible explanations: The first is that the market is convinced, despite all the bad news, that the war will end relatively soon," he said. 

"The second is that even if the war continues, its negative impact will be outweighed by fiscal stimulus, a bit like what happened during the pandemic."

On Friday, the US jobs report showed employment growth rebounded more than expected in March, with a 178,000 increase in nonfarm payrolls representing the biggest increase in more than a year. 

The unemployment rate fell to 4.3 per cent from 4.4 per cent, as people dropped out of the workforce. 

The data complicates the picture for the Federal Reserve, which will next decide on monetary policy at a two-day meeting ending on Apr 29. 

However, swap pricing indicates the market is expecting no moves at all from the US central bank until September 2027, according to the CME Group's Fedwatch tool.

The US dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.1 per cent at 100.13. The yield on the US 10-year Treasury bond was up 1.2 basis points at 4.3565 per cent.    

In Tokyo, the yield on the Japanese government bond set a fresh record for the 21st century on concerns about rising inflation. 

The yield on the notes was up 4.5 basis points at 2.425 per cent, the highest since February 1999. 

Against the yen, the US dollar was flat at 159.615 yen.    

Gold slid 0.5 per cent to US$4,653.82. In cryptocurrencies, bitcoin was up 1.9 per cent at US$68,886.31, while ether gained 2.6 per cent to US$2,122.32.