Asian stocks are set for gains, while oil prices are edging higher due to renewed concerns that escalating tensions between the US and Iran could disrupt crude supplies and stoke inflation following weekend attacks. Equity-index futures for Japan and South Korea pointed to gains at the open, and those for Australia were steady. In contrast, contracts for US stocks were little changed after the S&P 500 fell 0.4% and the tech-heavy Nasdaq 100 advanced 0.2% on Friday. The dollar remained in a narrow range against major peers, and cash trading in Treasuries was closed for a US public holiday.
Brent crude climbed 0.5% after Iran claimed to have targeted three oil tankers using an unauthorized route through the Strait of Hormuz and several US-linked vessels. These actions were reportedly in retaliation for American attacks on Iranian tankers. The ongoing conflict between the US and Israel against Iran, which has lasted over six months, suggests little immediate prospect of resolution, further contributing to inflation concerns.
This situation places increased focus on upcoming US inflation data, especially after stronger-than-expected jobs figures recently nudged up expectations for a Federal Reserve rate hike this month. Elias Haddad, global head of markets strategy at Brown Brothers Harriman, noted that a September 16 Fed funds rate hike hinges on Friday's US August CPI print. A strong CPI reading would likely confirm a September hike and strengthen the US dollar, while a weaker reading would support a hold on rates and leave the dollar vulnerable.
In Asia, the yen continued to fluctuate around 156 per dollar, following a 2.4% gain last week driven by unwinding carry trades and increasing expectations for successive Bank of Japan rate hikes. Speculation is also growing that Japan's Government Pension Investment Fund might increase its target allocation to domestic bonds. Barclays Securities strategists, including Shinichiro Kadota, suggest the market anticipates a combination of GPIF reallocation and aggressive BOJ tightening could push the dollar-yen towards 150 or beyond, though further strengthening of the yen depends on the BOJ delivering on perceived hawkish signals.
Elsewhere, China's Ministry of Finance plans to inject 300 billion yuan ($44.7 billion) in special bonds into its largest banks and insurers. This measure aims to alleviate margin pressure, expand lending capacity, and bolster provisions against potential bad loans.
