Asian markets tumble as US-Iran fighting lifts oil and bond yields

Asian markets experienced a sharp decline on Wednesday following heightened tensions between the United States and Iran, which led to a surge in oil prices and increased bond yields globally. The MSCI’s Asia-Pacific index outside Japan fell by 1.5%, with South Korea's KOSPI dropping over 3% and the Nikkei 225 sinking 2.6%. S&P 500 e-mini futures also experienced a 0.1% drop, while Brent crude futures continued to rise for a second consecutive day, reaching $95.91 a barrel after the US conducted airstrikes on Iran on Tuesday.

Westpac analysts noted that the threat of further disruptions to the Strait of Hormuz had instilled anxiety about inflation, causing a selloff in stocks and a decline in global bond markets. The yield on the US 10-year Treasury bond reached an intraday high of 4.8122%, its highest level in nearly three years, while the yield on the 5-year Japanese government bond hit an all-time high of 2.295%.

New Zealand's currency weakened 0.6% to $0.5855 after its central bank raised interest rates by 25 basis points to 2.75%, despite the dovish tone in the central bank's statement. The US dollar index rose 0.1% to 99.79, its highest since August 17. Wall Street's S&P 500 and Nasdaq Composite both declined, with the S&P 500 falling 0.7% and the Nasdaq Composite dropping 1%, as rising bond yields negatively impacted equities.

Data released by the Institute for Supply Management indicated that U.S. manufacturing activity slowed in August, but remained in expansionary territory. Traders anticipated that the Federal Reserve would likely raise interest rates at its upcoming meeting in two weeks, although an increase was not guaranteed. Fed funds futures indicated a 67% probability of a 25-basis-point hike at the Fed's September meeting, up from a 39.6% chance a week earlier.

Gold prices fell 0.8% to $4,295.70 an ounce, while bitcoin dipped 0.6% to $76,979.55 and ether decreased 0.9% to $2,397.78.