Asian shares traded cautiously on Tuesday as rising oil prices and bond yields added to inflation concerns ahead of key interest rate decisions from the US Federal Reserve and Bank of Japan.
US crude rose 1.27% to US$102.68 a barrel while Brent crude gained 1.21% to US$106.96 as renewed Middle East tensions raised concerns over disruptions to Saudi oil supplies.
Yokoo Akihiko, an analyst at Mitsubishi UFJ Bank, said higher crude prices could add to inflationary pressures and push interest rates higher.
Asian markets were also affected by growing concerns over artificial intelligence spending after industry figures called for a slowdown in AI development.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.12%, led by a 0.25% decline in South Korea. Japan’s Nikkei edged 0.19% higher after reversing earlier losses.
Among chip stocks, Samsung Electronics fell 0.2% while Japan’s Kioxia gained 3.3%.
Investors are now awaiting the Federal Open Market Committee’s two-day meeting, which begins on Tuesday. Markets are pricing in a 90% chance of a 25-basis-point rate hike on Wednesday, which would be the Fed’s first increase since mid-2023.
Morgan Stanley analysts expect the Fed to raise rates by 25 basis points this week and again in December, citing persistent inflation risks and the potential impact of higher energy prices.
Bond yields have also added to market pressure. The 10-year US Treasury yield briefly touched 5% overnight, its highest level since 2023, while Germany’s 10-year yield climbed above 3.51%, its highest since 2009.
The Bank of Japan is also widely expected to raise its policy rate by 25 basis points to 1.25% on Friday, with markets looking for signals on further tightening.
In currency markets, the dollar index rose 0.05% to 99.53, while the dollar strengthened 0.17% against the yen to 154.61. Gold slipped 0.15% to US$4,291.59 an ounce.
Reuters
