Asian stocks tumbled on Wednesday as renewed US-Iran fighting sent oil prices higher and added to concerns over inflation, while rising bond yields continued to weigh on investor sentiment.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.8% in early trade, while South Korea’s KOSPI dropped 3% at the open and Japan’s Nikkei 225 sank 2.2%. S&P 500 e-mini futures were little changed.
Brent crude futures extended gains for a second day in Asian trading, rising 0.7% to US$95.34 a barrel after the US launched a barrage of airstrikes on Iran on Tuesday. Oil prices had already climbed to a five-week high following the attacks.
The renewed fighting has brought the Strait of Hormuz back into focus, with investors worried that further disruption to the key oil shipping route could add to inflationary pressure.
“The threat of further disruptions to the Strait of Hormuz has brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global bond markets,” Westpac analysts wrote.
Bond markets remained under pressure, with the yield on the US 10-year Treasury rising 0.4 basis point to 4.798%. The US dollar index, which measures the greenback against a basket of six currencies, held near a two-week high at 99.67.
The weakness in Asia followed another difficult session on Wall Street, where the S&P 500 fell 0.7% and the Nasdaq Composite declined 1% as higher government bond yields weighed on equities.
Investors are also reassessing the outlook for US interest rates. Traders increasingly expect the Federal Reserve to raise rates at its meeting in two weeks, although a hike is not certain.
Fed funds futures were pricing in a 67% probability of a 25-basis-point rate increase at the Fed’s two-day meeting ending Sept 16, up from 39.6% a week earlier, according to the CME Group’s FedWatch tool.
US manufacturing activity also remained on the radar after data from the Institute for Supply Management showed activity moderated in August as new orders slowed, although the sector remained in expansion territory.
Elsewhere, gold was little changed at US$4,328.59 an ounce. Bitcoin slipped 0.2% to US$77,246.57 while ether fell 0.3% to US$2,412.60.
Reuters
