Escalating Middle East tensions drove the dominant macro narrative on Thursday, with Iran-backed Houthi drone strikes targeting Saudi Aramco's Shaybah oil field prompting the US to order non-emergency diplomats and their families to leave Saudi Arabia, while reports of Israeli contingency planning for strikes on Iranian nuclear facilities added a further layer of geopolitical premium. Brent crude surged to a five-month high above $112/bbl and WTI pushed toward $99, compounding an already risk-off session rattled by AI capital expenditure concerns following Meta's first-ever negative free cash flow print and plans to issue non-voting shares to fund AI spending. Simultaneous pressure emerged from European sovereign markets, where French 10-year yields hit 5% for the first time since 2002, with Bund spreads widening to 150–175 basis points amid a deepening fiscal and political crisis in Paris. Safe-haven flows supported the yen and Swiss franc, while the VIX jumped nearly 10% to 19.03, signalling a meaningful deterioration in global risk appetite.
For Asia-Pacific markets, the confluence of surging energy costs, tech-led equity weakness in the US, and European sovereign stress created a hostile backdrop heading into the Friday open. The Nikkei fell 2.65% and the Hang Seng dropped 3.03% in the prior session, and the KOSPI cratered 3.73%, reflecting how sharply regional markets are discounting the AI capex rethink and geopolitical risk premium. The ASX 200 closed down 0.43% at 8,793.2 on Thursday, dragged by materials off 2.98% and energy off 1.94%, even as oil prices rose — a reminder that global sentiment and metals weakness are currently the dominant forces overriding commodity price tailwinds for local resource names. With the ASX VIX ticking up 2.51% to 11.15 and the AUD softening to 0.702, Australian investors face a cautious open with defensives likely the relative sanctuary.