Asian stocks trade mixed as Iran deadline and oil-driven Fed fears unsettle markets

Asian equity markets opened mixed on Tuesday, tracking US stock index futures, as investors remain cautious ahead of US President Donald Trump's deadline for Iran to reopen the Strait of Hormuz. At the time of writing, Japan’s Nikkei 225, Thailand's SET Index, Indonesia's IDX Composite, and Malaysia's KLCI index are experiencing some downward pressure, while South Korea’s Kospi and Australia's S&P/ASX 200 are trading with modest gains.

Trump heightened a harsh rhetoric against Iran and threatened to decimate civilian infrastructure if the deadline of Tuesday, 8 PM Eastern Time (00:00 GMT Wednesday) passes without a deal. Iran, on the other hand, pushed back against pressure to reopen the strategic waterway and rejected a ceasefire proposal, instead insisting on a permanent end to the conflict. This raises the risk of a further escalation of conflict in the Middle East and keep nervy investors ‌on the sidelines.

Meanwhile, geopolitical uncertainties push Crude Oil prices to a fresh four-week top and back the case for a further move up, fueling inflationary concerns and bolstering bets for more hawkish central banks globally. Furthermore, traders are pricing in the possibility of a rate hike by the US Federal Reserve (Fed) by the end of this year. This turns out to be another factor weighing on investors' sentiment and might keep a lid on any optimism in the markets, warranting caution for bulls.

The market attention now shifts to the release of the latest US consumer inflation figures, due on Friday, which will include the Middle East conflict period and allow investors to assess the effects of surging Oil prices. The focus, however, will remain glued to geopolitical developments amid fading hopes for a last-minute agreement between the US and Iran. The failure to reach a deal would likely trigger a new phase of US military action and trigger a fresh wave of the risk-aversion trade.