South Korea's Kospi index plunges 4.2%, leading losses in Asian stocks that are down for third consecutive day

South Korea's benchmark index Kospi declined 4.5%, extending its losses of 7.2% on Tuesday, which was its worst ever session since August 2024.

The South Korean won edged higher on Wednesday post sliding to its weakest since 2009 in the previous session.

Other Asian equities too extended their slide for the third consecutive day as oil prices edged higher, in wake of Iran threatening to unleash a wave of global inflation as traders pared bets for US Fed's interest rate cuts.

The MSCI Asia Pacific Index declined 1.6% as stocks opened lower in South Korea, Japan and Australia.

That came after a late recovery in the US session trimmed some of the losses from a global selloff after President Donald Trump’s assurances on securing shipping through the Strait of Hormuz helped steady nerves. US benchmarks fell around 1%.

West Texas Intermediate crude rose as much as 1.2% on Wednesday amid prospects of crude flows through the Strait of Hormuz. Trump said the US will escort and insure tankers and other vessels through the world’s most-critical energy chokepoint, a measure meant to head off a potential crisis.

Gold rose 0.5% to trade close to $5,110 on Wednesday, rebounding after a 4.4% slide in the New York session that came amid a recovery in stocks. The yield on 10-year Treasuries climbed three basis points to 4.06% on Tuesday, while the dollar rose for a second consecutive day on Tuesday.

The US-Israeli attack on Iran has destabilized the Middle East and threatens to deliver a new inflationary shock to the US economy by pushing up oil prices. There’s also no clear sense of when or how it will end, raising the prospect of prolonged conflict and unforeseen consequences beyond the White House’s control.

The war continued to reverberate across the region, with Israel bombarding Tehran in a fresh wave of strikes. The Islamic Republic fired missiles at Qatar, Bahrain and Oman, with Doha saying targets weren’t limited to military interests. Qatar and Iraq halted production at major energy sites.

In other corners of the market, European natural gas spiked to a three-year high, which may lift prices in Asia as the regions compete for liquefied natural gas cargoes.

With the conflict disrupting shipments, fuel costs have been on the rise. A sustained surge in prices for diesel — used in freight, power and heating — could add to the cost of transportation — a key component of inflation. Gasoline prices have also jumped, intensifying those risks.

Meanwhile, traders in the futures markets are sharply reducing expectations for interest rate cuts from the Federal Reserve, as the war with Iran drives fears of an inflationary resurgence.

The view is being expressed in interest-rate futures spreads, which are tightening on bets that a war-fueled spike in oil prices could aggravate inflation and make it harder for policymakers to reduce borrowing costs this year.

With inputs from Bloomberg

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