Brent crude set for record monthly gain; Asia shares falter as Iran war rages

SINGAPORE — Oil prices on Tuesday (March 31) were set for a record monthly rise while Asian shares were headed for their steepest fall since 2022, capping a tumultuous month as the war in the Middle East stoked fears of higher inflation and slower growth.

Bonds were headed for their largest decline in months, owing to the hawkish sea change in the global outlook for interest rates, while the dollar recorded its strongest gain in eight months.

A month into the war, investors continue to be whipsawed by a barrage of headlines as tensions and attacks between the US, Israel and Iran escalate.

"It appears markets have gone from just mechanically trading headlines ... into a little bit more of a fear mode, taking risk off the table," said Vishnu Varathan, Mizuho's head of macro research for Asia ex-Japan.

"That partly might have to do with the transition from earlier thinking that there's a good chance of Trump being able to control the timeline and/or your Taco trade, to now beginning to be concerned or fearing a more prolonged conflict."

Markets turned a little more upbeat after The Wall Street Journal reported that US President Donald Trump told aides he is willing to end the military campaign against Iran even if the Strait of Hormuz remains largely closed.

US futures reversed early losses, with Nasdaq futures up 0.34 per cent and S&P 500 futures gaining 0.4 per cent.

EUROSTOXX 50 futures rose 0.15 per cent and DAX futures were up 0.26 per cent.

Still, Brent crude futures were up roughly two per cent at US$114.98 (S$148) per barrel, taking their gains for the month to roughly 59 per cent, the largest on record.

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US crude advanced 1.8 per cent to US$104.73 a barrel and was headed for a monthly rise of roughly 56 per cent, the most in nearly six years.

"I think inflation will be the bigger near-term concern for global markets," said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics.

"But if oil prices don't fall back over the next few months, we will probably have to start thinking about growth too."

The higher-for-longer energy prices have meant more pain for Asia, which is highly reliant on energy from the Middle East.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.55 per cent and on track for a monthly fall of more than 12 per cent, the most substantial decline since September 2022. 

Japan's Nikkei was down 0.93 per cent and was set to lose 12.6 per cent this month, while South Korea's Kospi was headed for a monthly decline of more than 17 per cent, the most since 2008.

Bonds under water, dollar is king

The threat of inflation has led investors to ramp up expectations for rate hikes across major central banks this year, which in turn hammered bonds.

The Federal Reserve is now expected to keep rates on hold this year, compared with more than 50 basis points worth of easing priced in prior to the start of the war.

Fed Chair Jerome Powell on Monday said the US central bank can wait to see how the Iran war affects the economy and inflation, noting that policymakers typically look through shocks such as those from higher oil prices.

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US Treasury yields steadied on Tuesday, though the two-year yield was set to rise more than 40 bps for the month, its largest increase since October 2024.

The benchmark 10-year yield has similarly advanced about 37 bps in March, its largest monthly rise since December 2024.

In currencies, the dollar was headed for its biggest monthly gain since July, having emerged as one of the few safe-haven assets amid the war.

Against a basket of currencies, the greenback was set to rise roughly 2.9 per cent this month. 

The euro, which last bought US$1.1474, was headed for a nearly three per cent monthly loss while sterling was down more than two per cent in March.

The yen remained a whisker away from a 160 per dollar level and was last 0.1 per cent weaker at 159.93.

In precious metals, spot gold was up 0.6 per cent at US$4,538.07 an ounce.

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