Tokyo Market Outlook: WTI crude topping $90 sends ripples through market; defensive stocks outperform amid selloff

The Nikkei Stock Average fell 1,889 yen on the 2nd to close at 64,325 yen, marking a third straight session of declines. Overnight losses on Wall Street, driven by rising crude oil prices and higher interest rates, weighed on the Dow Jones Industrial Average and the Nasdaq Composite Index. Tokyo markets followed suit, with AI- and semiconductor-related shares bearing the brunt of the selling, including SoftBank Group Corp. <9984> and ADVANTEST CORPORATION <6857>. About 90% of Prime Market stocks declined, and all 33 Tokyo Stock Exchange sectors ended in negative territory, resulting in a broad-based selloff.

Surging crude oil prices drew particular focus. WTI futures briefly rose to the $92 per barrel range, their highest level since late July, as markets reacted negatively to the ongoing exchange of attacks between the U.S. and Iran. WTI had previously fallen to the $60 range after the two countries signed a memorandum of understanding in June, but the collapse of that framework and the subsequent escalation of hostilities have prompted concerns in the market about a return above $90. Analysts noted that a near-term de-escalation of the Iran situation may not be realistic given the breakdown of the memorandum and ongoing tit-for-tat strikes.

Among the factors that could improve the U.S.-Iran situation, markets have been looking to a U.S.-China summit expected in late September, with hopes that China could serve as a mediator. However, some analysts cautioned that China's pro-Iran stance makes mediation appear difficult.

Markets had also anticipated that the Trump administration would seek to calm the Iran situation ahead of the U.S. midterm elections in November. Yet some observers suggested the opposite dynamic may be at play, noting that Iran may calculate the U.S. would not want to stir up trouble in the Middle East with midterms approaching. There is also an interpretation that while President Trump has continued to issue hawkish statements, Iran has been emboldened in part because the administration has refrained from taking full-scale hardline action.

Nevertheless, both countries are seen as wanting to avoid a further significant surge in oil prices, and WTI is expected to trade in the about $80 to low-$90 range. The market's prior assumption that the Iran situation would settle before the midterm elections may prove overly optimistic, raising the possibility that oil prices could remain elevated.

Against this backdrop, defensive stocks have shown resilience. Shares worth revisiting include telecom names NTT, Inc. <9432> and SoftBank Corp. <9434>, pharmaceutical companies DAIICHI SANKYO COMPANY, LIMITED <4568> and Shionogi & Co., Ltd. <4507>, and food sector names KIKKOMAN CORPORATION <2801>, Nissui Corporation <1332>, and Kewpie Corporation <2809>.

Later today, U.S. chipmaker Broadcom is scheduled to report earnings, with its results drawing close attention. In addition, the U.S. August ADP Employment Report and the Federal Reserve's Beige Book are set to be released. Tomorrow, a domestic 30-year JGB auction is scheduled, while the U.S. August ISM Non-Manufacturing Index will also be published.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.