Asia stocks drop amid uncertainty over US involvement in Israel-Iran conflict

Investing.com-- Asian stocks broadly declined on Thursday with Japan and Hong Kong leading losses, as geopolitical tensions escalated after a media report stated the U.S. was preparing for a potential military strike on Iran.

U.S. stock futures also dipped in Asia hours, reflecting investor caution ahead of developments in the Israel-Iran conflict. 

Market participants also closely assessed the Federal Reserve’s interest rate decision and Jerome Powell’s comments on tariff-induced inflation.

Hong Kong stocks drop over 1% amid escalating Israel-Iran conflict

Sentiment soured on Thursday after a Bloomberg report stated that senior U.S. officials were preparing for a potential strike against Iran, possibly over the weekend, signaling a direct escalation in the conflict.

U.S. President Donald Trump said on Wednesday he has “ideas” but would decide “one second before it’s due,” amplifying market jitters. He had said he may or may not strike Iran.

This comes after Iran’s Supreme Leader, Ayatollah Ali Khamenei, rejected President Trump’s demands for unconditional surrender, and said that neither peace nor war could be imposed on the Islamic Republic.

Meanwhile, the Federal Reserve’s decision on Wednesday to hold interest rates steady, and Chair Jerome Powell’s warning that trade-related tariff inflation could pick up this summer, further weighed on risk appetite. 

Hong Kong’s Hang Seng index led losses, shedding more than 1% after falling sharply in the previous session.

Japan’s Nikkei 225 index fell 0.7%, while the broader TOPIX index lost 0.6%.

China’s Shanghai Composite index edged 0.3% lower, and the Shanghai Shenzhen CSI 300 dipped 0.2%.

South Korea’s KOSPI slipped 0.5%, while Singapore’s Straits Times Index fell 0.2%.

Futures for India’s Nifty 50 edged 0.2% lower, while Indonesia’s Jakarta Stock Exchange Composite Index dropped more than 1%.

Australia jobs fall unexpectedly in May; stocks muted

Australia’s S&P/ASX 200 index was largely unchanged on Thursday.

Data on Thursday showed that Australia’s job market unexpectedly shrank in May, while the unemployment rate remained steady.

This reflected that the labor market was still largely tight, but could provide some room for the Reserve Bank of Australia to cut rates further.