Eurozone Markets Face Double-Digit Weekly Loss Amid Rising Tensions Over Iran Conflict

Emerging Market Assets Decline for Second Week

The MSCI Emerging Markets Index fell as much as 1.7% on Friday and is poised to record a weekly loss of more than 2%. This decline is attributed to the ongoing Middle East crisis, which has resulted in increased concerns over the impact of high oil prices on emerging markets.

Currency Markets also experienced losses, with several emerging market currencies reaching fresh session lows. The South African rand, often used as a measure of risk appetite, led losses, followed by Eastern European and Latin American currencies. The surge in the US dollar and oil prices, fueled by reports of the Pentagon moving a Marine expeditionary unit to the Middle East, contributed to the decline.

South African Stocks are headed for a correction, having fallen 10% since peaking in late February. Investors have unwound bullish bets that made the country's stock market one of the big gainers last year. The sour market mood worsened after US President Donald Trump threatened more attacks in response to Iran's defiance.

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The ongoing conflict is expected to continue to weigh on risk sentiment, with analysts at KBC Group noting that the underlying market dynamics of high oil prices, rising interest rates, a stronger dollar, and weaker equities are likely to persist. Treasury yields were also impacted, with short-dated notes outperforming as traders priced in a potential Federal Reserve rate cut this year.

Even developing nations less dependent on energy imports or with attractive bond yields are not immune to the turmoil. Citigroup Inc. has closed all remaining carry trades on high-yielding emerging currencies, including the Brazilian real, Mexican peso, and South African rand. The Nigerian central bank has also prepared contingency measures to stabilize its currency, even as the naira fell less than the rand and Egyptian pound.