Mumbai: Asian equities retreated on Wednesday as crude oil approached $95 a barrel, driving bond yields higher and reviving fears that central banks may tighten policy to contain inflation.
MSCI’s Asia-Pacific index declined 1%, while South Korea’s Kospi tumbled 2.72%. Japan’s Nikkei 225 dropped 2.27% and the broader Topix lost 1.72%.
Hang Seng futures were broadly unchanged. GIFT Nifty traded lower, signalling a weak opening for India’s Nifty 50.
Oil surge rattles markets
Brent crude climbed towards $95 a barrel, while West Texas Intermediate rose 0.8% to $90.91.
Prices strengthened as escalating fighting between the US and Iran intensified concerns about possible disruption to energy shipments through the Strait of Hormuz.
President Donald Trump said American strikes followed Iran’s alleged attempt to mine the strait and an earlier attack on a US military base in Jordan.
Iran said it subsequently fired a missile at an American air base in Jordan.
Bond yields hit 2008 high
Rising energy costs pushed global bond yields to their highest level since 2008 as expectations of renewed inflation strengthened.
Higher government expenditure and heavy corporate borrowing linked to artificial-intelligence infrastructure have added to concerns about persistent price pressures.
Wall Street had already weakened, with the S&P 500 declining for a third consecutive session and the Nasdaq 100 falling 1.3%.
Fed rate-rise bets increase
Federal Reserve Chair Kevin Warsh’s hawkish Jackson Hole address reinforced expectations that US interest rates could rise again.
Markets are pricing in approximately a 70% probability of a September increase, according to Bloomberg.
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Fed Governor Michael Barr said policymakers must remain prepared to raise rates if inflation fails to ease. He warned that price pressures could become entrenched after remaining above target for more than five years.
Investors will now closely watch Friday’s US payrolls report for signals about the Federal Reserve’s next decision.
In currencies, the yen remained steady at 160.15 per dollar, while the offshore yuan was little changed at 6.7221.
