Asian shares slipped on Monday as renewed fighting between the United States and Iran pushed oil prices higher, while elevated bond yields kept pressure on equities amid growing expectations of a US interest rate hike.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6%, while Japan’s Nikkei declined 0.4% and South Korea’s benchmark eased 0.1%. Chinese blue-chip stocks also fell 0.4%, with property developers under pressure following new regulatory measures from Beijing.
The broader weakness came as oil prices climbed on renewed geopolitical tensions. Brent crude futures rose 2.7% to US$90.51 a barrel after US forces struck Iranian launchers on Larak island in the Strait of Hormuz. Iran subsequently attacked US forces in Jordan and claimed to have hit a tanker travelling through the strait.
The surge in oil prices added to inflation concerns, putting further pressure on bond markets after Federal Reserve Chair Kevin Warsh indicated that the central bank still had more work to do to contain inflation.
Markets raised the probability of a September US rate increase to 57%, sending short-term Treasury yields sharply higher and flattening the yield curve. Two-year Treasury yields held at 4.34%, while 10-year Japanese government bond yields returned to their highest level since 1996.
Reuters reported that investors will closely watch Friday’s US August payrolls report and consumer price data due on Sept 11 for signs of whether the Federal Reserve will move next month. Economists expect employment to rebound by 58,000 after a 23,000 decline in July, while unemployment is forecast to remain at 4.1%.
The pressure extended beyond Asia, with EUROSTOXX 50 futures down 0.3% and DAX futures off 0.2%. On Wall Street, S&P 500 futures fell 0.2%, and Nasdaq futures slipped 0.1%.
Meanwhile, the dollar remained near the 160-yen level, trading at 159.78 yen. US Treasury Secretary Scott Bessent said the yen’s recent decline was “pretty well contained”, suggesting there was little immediate risk of renewed Japan-US currency intervention.
Investors will also be watching the G20 meeting of finance ministers and central bank governors in North Carolina, where inflation, interest rates and the wider economic impact of geopolitical tensions are expected to remain key concerns.
