Asian share markets opened lower on Monday as escalating conflict in the Middle East sent oil prices sharply higher, reviving concerns over global inflation and the prospect of further interest rate hikes.
Brent crude climbed 3.3% to US$78.50 a barrel in early trading, while US West Texas Intermediate (WTI) crude rose 3.4% to US$73.83 after Iran claimed it had closed the Strait of Hormuz following renewed attacks involving US and Iranian forces.
The jump in energy prices dampened investor sentiment across regional markets. Japan’s Nikkei fell 1%, while MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.2%. South Korea’s benchmark index declined 0.4% after losing nearly 8% last week as heavy selling in semiconductor stocks continued.
US equity futures also pointed lower, with S&P 500 futures easing 0.3% and Nasdaq futures falling 0.5%.
The renewed geopolitical tensions also strengthened the US dollar and pushed bond yields higher as investors raised expectations for tighter monetary policy. Fed funds futures implied around 34 basis points of policy tightening by year-end, while the US Dollar Index held firm at 101.12.
Market attention is now turning to a packed week of US economic data, with June consumer price index figures due on Tuesday and producer price data on Wednesday. Investors will also be watching Federal Reserve Chair Kevin Warsh’s first congressional testimony for further clues on the central bank’s policy direction.
The second-quarter earnings season also begins this week, led by major US banks, alongside results from Netflix and General Electric.
Citi analysts said they continue to favour technology stocks despite expected volatility linked to artificial intelligence, maintaining an overweight stance on global IT and US equities while also preferring cyclical sectors including Japanese equities, financials and materials.
In commodity markets, rising Treasury yields weighed on gold prices, with the precious metal falling 1.1% to US$4,076 an ounce.
