Asian shares experienced a decline on Monday as escalating tensions between the US and Iran led to a surge in oil prices, while elevated US bond yields fueled expectations of a Federal Reserve rate hike. The probability of a September rate increase rose to 57%, according to market reactions, pushing short-term Treasury yields higher. JPMorgan's chief US economist, Michael Feroli, noted that while they still anticipate a hike in December, the September meeting is now considered "live." Barclays, for instance, now projects the Fed will implement 25 basis point rate hikes in both September and December.
The renewed military clashes between the US and Iran directly impacted commodity markets. US crude oil prices climbed 2.6% to $85.57 a barrel, while Brent crude futures settled at $90.49, up 2.71%. Gold, conversely, saw a 0.6% decline to $4,425 an ounce, after dropping 3.2% on August 28 as yields spiked. The geopolitical tensions also contributed to inflationary concerns, with Federal Reserve Chairman Kevin Warsh emphasizing the central bank's commitment to controlling inflation in his recent speech.
The elevated yields and geopolitical uncertainty had a notable impact on equity markets across Asia. Japan's Nikkei index fell 0.4%, South Korean stocks decreased by 0.1%, and MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.6%. Chinese blue chips eased 0.4%, with property developers facing pressure following new regulatory changes announced by Beijing. Meanwhile, the US dollar traded 0.1% lower at 159.78 yen, while Japanese 10-year yields reached their highest level since 1996, following a sell-off in Treasuries. Two-year Treasury yields held at 4.34%, after a nearly 12 basis point jump on August 28.
