Asian stocks slide on flare-up in Middle East fighting, oil eases off highs

Asian stock markets experienced a significant downturn on Thursday, with the MSCI's broadest index of Asia-Pacific shares outside Japan sliding 1.5%. The decline was primarily triggered by a flare-up in fighting between the United States and Iran, which rattled investor confidence and shifted financial markets back into a risk-off mode. Markets in South Korea and Japan were particularly hard-hit, with Korean shares reopening down as much as 2.6% and Japan's Nikkei 225 slumping 1.9%.

This renewed geopolitical tension overshadowed better-than-expected US economic data, such as the ISM services sector PMI, which rose in May. Traders had anticipated potential shortages and price increases due to the conflict, leading businesses to preemptively place orders and rebuild inventories. However, the escalating hostilities between the US and Iran, coupled with stalled talks between Tehran and Washington, pushed oil prices up by around 2% overnight.

Conversely, oil prices saw a slight easing on Thursday, with Brent crude futures trading 1.3% lower. This moderation followed an agreement between Israel and Lebanon to implement a ceasefire. The ceasefire is contingent on a complete cessation of fire from the Iran-aligned Hezbollah militia and the withdrawal of its operatives from the South Litani Sector. This development offered a glimmer of relief in the broader Middle East tensions.

In corporate news, Broadcom shares plunged over 13% in extended trading after the company missed Wall Street's revenue expectations for the second quarter. This downturn, coupled with the executive maintaining a previous 2027 sales forecast, raised concerns that the AI chipmaker might be losing momentum. Meanwhile, the yen strengthened against the dollar, nearing a level that traders view as a potential trigger for intervention, while the Australian dollar saw a modest rise after the country's trade balance swung back into surplus.

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Financial markets shifted back into a risk-off mode as the US and Iran exchanged fire again.