Asian equities are expected to open lower, with MSCI Asia Pacific Index slipping 0.2%. Benchmarks in South Korea and Japan are projected to decline. This downturn is largely driven by renewed geopolitical tensions in the Middle East, pushing Brent crude oil prices to over $91 a barrel, which revives inflation concerns and expectations for further monetary tightening. The S&P 500 futures remained largely unchanged at 9:04 AM Tokyo time, while Hang Seng futures fell 0.4%, Japan’s Topix dropped 0.3%, and Australia’s S&P/ASX 200 declined 0.4%.
The S&P 500 Index closed 0.3% lower on Monday. Despite this, a gauge of US chip stocks advanced, following Nvidia's announcement of a $3.5 billion investment in MediaTek to deepen their collaboration. However, the broader market sentiment remains cautious due to the escalating energy costs. These rising costs have already impacted Treasury markets, with yields on 10-year notes increasing three basis points to 4.75% during the New York session, marking the highest level since January 2025.
The persistent Middle East tensions are dimming prospects for a normalization of shipping through the Strait of Hormuz, maintaining elevated oil prices and exacerbating inflation worries. Chris Larkin from E*Trade from Morgan Stanley noted that traders are monitoring both geopolitical and potential seasonal volatility. Separately, US Treasury Secretary Scott Bessent reportedly informed Japanese Finance Minister Satsuki Katayama and Bank of Japan Governor Kazuo Ueda that additional interest rate hikes are necessary. Japan’s 10-year benchmark yield approached 3% on Monday, a level not seen since 1996. Conversely, South Korea’s won is expected to strengthen as the nation's chip firms attract foreign capital for production expansion.
