Asian share markets experienced a decline on Monday, August 31, driven by renewed geopolitical tensions between the US and Iran, which pushed oil prices higher, and elevated US bond yields. The drop followed hawkish remarks from US Federal Reserve Chair Kevin Warsh, who emphasized the central bank's commitment to controlling inflation. This led investors to increase the probability of a September rate hike to 57%, causing short-term Treasury yields to rise sharply.
Japanese Nikkei fell 0.4%, South Korean stocks were down 0.1%, and MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.6%. Chinese blue chips eased 0.4% as property developers faced pressure from new regulatory changes. Analysts like Michael Feroli from JPMorgan expect a rate hike in December, though they acknowledge a September hike is possible. Barclays now anticipates 25 basis point rate hikes in both September and December.
The US dollar was 0.1% lower against the yen at 159.78, remaining below its July peak of 163.99. Two-year Treasury yields were at 4.34%, while 30-year bond yields were 5.208%. In commodity markets, US crude rose 2.6% to $85.57 a barrel, and gold lost 0.6% to $4,425 an ounce. Emerging market currencies, however, saw gains earlier in the month due to a softer dollar and reduced bets on a Fed hike, with MSCI's EM currency gauge rising 0.2%.
