A degree of caution is expected to weigh on sentiment and limit trading volumes as investors continue to navigate multiple geopolitical risks. These include the 'proportionate' action taken by the U.S. military last night in response to an attack that downed an Apache helicopter near the Strait of Hormuz, as well as overnight Iranian strikes against U.S. bases in the Gulf in retaliation for enemy fire.

In Tokyo, the Nikkei index was trading down by more than 2.1% as the closing bell approached on Wednesday. Meanwhile, the MSCI Asia-Pacific index (excluding Japan) shed nearly 2.5%.

Uncertainty regarding the outcome of the conflict in Iran had already dampened risk appetite on Wall Street yesterday.

While the Dow Jones managed a 0.2% gain, the S&P 500 ended in the red (-0.3%), as did the Nasdaq 100 (-1.1%) following a volatile session in which it had plummeted as much as 4% at its intraday lows.

Current futures pricing suggests a lower opening this Wednesday.

U.S. inflation in focus ahead of the Fed

Market jitters are further amplified as investors prepare for the 14:30 release of crucial Consumer Price Index (CPI) data for May in the United States.

These figures could bring the prospects of Federal Reserve monetary policy tightening back to the forefront, just one week ahead of the U.S. central bank's next meeting.

'As long as inflation data does not confirm a genuine downward trajectory, markets are likely to continue consolidating cautiously, although they will probably favor sector rotation over a global capitulation,' warns Linh Tran, analyst at XS.com.

According to consensus estimates, the year-on-year increase in the CPI is expected to have accelerated to 4.2% in May, up from 3.8% in April, reaching its highest level since April 2023.

In the meantime, bond yields are trending lower as the retreat in equities prompts a flight to government debt. Concurrently, the dollar is losing ground and gold is softening, reflecting the prevailing uncertainty across financial markets.

Oil prices steady despite geopolitical friction

Crude prices are showing little movement, suggesting that oil market specialists continue to lean toward the scenario of a U.S.-Iranian agreement despite the recent escalation in tensions.

Brent crude is down 0.1% at 91.3 dollars per barrel, returning to nearly two-month lows, while U.S. light crude (West Texas Intermediate, WTI) is easing 0.2% to trade below 88 dollars.

The sell-off in black gold began as early as Monday morning, following Sunday's announcement by OPEC+ members of a fourth consecutive increase in production quotas.