Asian markets rebound as US Fed tempers rate fears — but oil remains a threat

On September 4, Asian markets experienced a rebound as US Federal Reserve officials' comments eased concerns about potential interest rate hikes at their upcoming meeting. Despite this, there remained a sense of caution among traders, as oil prices climbed once more following a recent escalation in tensions between the United States and Iran.

The Middle East crisis had driven crude prices up by around 10%, fueling worries about inflation and putting pressure on central banks to raise interest rates. This in turn pushed the cost of government debt to record levels, with analysts highlighting the surge in corporate borrowing to finance AI investment and concerns over government finances.

Some relief was felt when US President Donald Trump suggested the latest bombing campaign against Iran would be brief, and remarks from New York Fed President John Williams and Chicago Fed Governor Christopher Waller provided further reassurance. Waller, in particular, emphasized that his September 16 policy decision would hinge on incoming data, indicating a possible rate hold if inflation progress was steady.

New York Fed President John Williams had previously suggested policymakers should "wait and see" and acknowledged recent encouraging inflation data, stating that they had been moving downward as the impact of tariffs receded. Meanwhile, Fed Chair Kevin Warsh unexpectedly raised the possibility of a rate hike, causing markets to react strongly.

Across Wall Street, all three major indexes surged, with the Dow and Nasdaq each gaining over one percent. In Asia, Hong Kong's main index climbed more than two percent, while Seoul and Tokyo also saw gains of more than one percent.

Meanwhile, the US dollar found support as the yen extended its gains from the previous two days, driven by expectations of an upcoming Bank of Japan rate hike and hints of further hikes at subsequent meetings. This sharp appreciation against the dollar prompted calls for potential intervention, reminiscent of the historic joint US-Japan move in July. The currency traded around 155.90 per dollar, down from a peak of 160.40 earlier in the week.