Asian stocks fall as oil price surge stokes inflation fears

Asian stocks declined, mirroring losses in their US counterparts, as escalating oil prices intensified worries about accelerating inflation and potential higher global interest rates. Brent crude oil prices surged to above US$101 a barrel, while the MSCI Asia Pacific Index dropped 0.8 percent, with major indices in Japan, South Korea, Taiwan, and Australia all falling.

The S&P 500 Index ended the day down 0.5 percent, and the Nasdaq 100 Index declined by 0.3 percent, hurt by Nvidia, Amazon, and Alphabet's share price reductions. Iran declared readiness for a more aggressive war in the Middle East following violence in the region. Meanwhile, the 10-year Treasury yield neared its high of 4.85 percent, a level last observed late in 2023, as the US government's plan to purchase up to US$6 billion in longer-dated debt fell short of some investors' expectations.

This situation compounds market sensitivity to the upcoming US inflation data on Friday, as it could influence the Federal Reserve's decision to raise interest rates during their upcoming meeting. Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International, noted that persistently high oil prices make it increasingly difficult for markets to dismiss inflation concerns.

Iran's leaders, according to a senior official, are committed to the conflict despite the US naval blockade, viewing it as a matter of national survival. The US dollar remained near a four-month low, with traders awaiting economic reports to gauge the Federal Reserve's potential for interest rate hikes this September. Gold prices increased by 0.4 percent to reach US$4,417 an ounce, while the US Treasury's plan to buy up to US$6 billion in longer-dated debt disappointed investors anticipating a larger increase.

The next key economic data points include the US producer price data release on Thursday and the Consumer Price Index figures on Friday. Market expectations suggest a 62 percent chance of a quarter-point rate hike at the Federal Reserve's meeting on September 15-16, with at least two rate increases anticipated by mid-2027.