Asian shares slip as Gulf oil spike rekindles inflation fears
A surge in oil prices triggered by Iranian threats to close the Strait of Hormuz weighed on Asian equities and pushed up Treasury yields, reviving investor anxieties over global inflation and potential Federal Reserve rate hikes.
Asian equities fell on Monday as Brent crude jumped 3.3 percent to $78.50 a barrel following reports of intensified fighting in the Gulf and Iran's claim to have closed the Strait of Hormuz. U.S. officials noted about 20 vessels had been escorted through the waterway in the past 24 hours, but tracking data showed minimal traffic.
The oil shock immediately altered rate expectations, pushing 10-year Treasury yields up 2 basis points to 4.59 percent. Fed fund futures now imply 34 basis points of policy tightening by year-end, keeping the dollar index firm at 101.12.
The sudden rise in crude complicates the inflation outlook just as investors brace for key U.S. June consumer price data on Tuesday. Economists had anticipated a cooling from the 4.2 percent headline rate due to declining petrol prices, but the resurgence in energy costs threatens to reverse those gains ahead of Federal Reserve Chair Kevin Warsh's first congressional testimony.
Equity markets reflected the renewed anxiety, with Japan's Nikkei dropping 1.0 percent after a 1.7 percent decline last week. The broader MSCI index of Asia-Pacific shares outside Japan slipped 0.2 percent, while S&P 500 and Nasdaq futures both fell in early trading.
Chip unwinding pressures Seoul
South Korea's benchmark eased 0.4 percent, extending an 8 percent rout from last week driven by the unwinding of leveraged semiconductor bets. The sell-off occurred despite SK Hynix's U.S.-listed shares surging almost 14 percent in their Nasdaq debut on Friday.
Looking ahead, market focus shifts to the U.S. earnings season, with major banks reporting on Tuesday alongside Netflix and General Electric. "Tech continues to screen highly in our models, supported by stand out earnings growth/momentum and attractive valuations," wrote analysts at Citi in a note. The bank maintained an overweight stance on global IT, pairing it with cyclical sectors like Japanese financials and materials.
In currency markets, the dollar added 0.1 percent against the yen to 161.96, rebounding from Friday's losses triggered by Japanese Finance Minister Satsuki Katayama's suggestion that the $1.8 trillion GPIF pension fund should repatriate capital. "The GPIF currently allocates 50/50 between domestic and offshore and a move back even to the pre-pandemic norm closer to 60/40 would come with a large JPY buying flow," said Taylor Nugent, a senior economist at NAB. "It is worth noting though that while allocations can theoretically be reviewed any time, they tend to be slow moving, and the FY26 investment plan is already in place."
Gold slipped 1.1 percent to $4,076 an ounce as higher yields dampened demand for non-interest-bearing assets.
