Asian share markets opened cautiously as rising oil prices and higher bond yields added pressure to investors ahead of a week packed with economic data and central-bank decisions.
Brent crude futures rose 1.6% to US$106 a barrel, while US crude futures gained 1.1% to US$93.47. Oil prices moved higher as doubts grew over whether the United States and Iran could reach a truce that would ease disruptions around the Strait of Hormuz.
The latest move in oil came after US President Donald Trump rejected an Iranian proposal linked to reopening the Strait of Hormuz, although he said negotiations would continue. Iran has maintained its own conditions for any agreement.
Higher energy prices are adding to concerns about inflation. A shortage of refining capacity has pushed diesel prices to record levels relative to crude, increasing the risk that elevated fuel costs could feed into transportation, business expenses and consumer prices.
The pressure was visible across Asian markets. Japan’s Nikkei rose 0.8%, while South Korean shares slipped 0.6%. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.
Bond markets are also coming under pressure as investors reassess the outlook for interest rates. The yield on 30-year US Treasury bonds reached 5.5185%, close to its highest level since 2004. The 30-year yield has climbed 27 basis points this month, while two-year yields have risen 55 basis points as markets increasingly price the possibility of further Federal Reserve tightening.
Higher Treasury yields can weigh on equities by increasing borrowing costs for companies and raising the discount rate applied to future corporate earnings. The effect can be particularly important for technology companies that are investing heavily in artificial-intelligence infrastructure.
At the same time, stronger economic data have provided some support for corporate earnings expectations. The Atlanta Federal Reserve’s GDPNow model was forecasting annualised growth of 5.0% for the third quarter, while economic activity in parts of Asia and Europe has also remained relatively firm.
Markets are now watching a heavy US economic calendar that includes inflation, gross domestic product, manufacturing and employment data. The September payrolls report is expected to provide another important signal for the Federal Reserve’s interest-rate outlook.
Currency markets have also reflected the shift toward higher US rates. The US dollar index climbed to a two-month high of 101.39, while the dollar strengthened to around 157.53 yen. The euro fell to US$1.1380 after losing about 2% during September.
Gold, meanwhile, fell 0.5% to about US$4,262 an ounce. The precious metal has declined more than 4% this month as rising yields increase the opportunity cost of holding an asset that does not pay interest.
The combination of higher oil prices, rising yields and shifting expectations for monetary policy leaves Asian markets facing several competing forces. Strong economic activity can support corporate earnings, but persistent energy inflation and higher borrowing costs can make financial conditions more restrictive.
The bigger issue for investors now is whether incoming economic data will reinforce expectations for higher interest rates — or provide enough evidence of slowing growth to change the direction of bond yields and global equity markets.
