Global Market Today: Asian stocks to fall as oil stokes inflation fears

Asian stock markets were set to fall on Thursday, mirroring declines on Wall Street as soaring oil prices and Treasury yields fueled inflation worries ahead of crucial U.S. economic data. The U.S. oil price continued its eight-day upward streak. Futures for equity indexes from Japan, South Korea, and Australia turned bearish after the S&P 500 Index dropped 0.5%, primarily due to industrial and consumer discretionary stocks.

The Nasdaq 100 Index slipped 0.3% as shares of Nvidia Corp., Amazon.com Inc., and Alphabet Inc. fell. U.S. stock contracts remained flat in early Asian trading. Treasury yields surged, with the 10-year breaching its highest level since 2023, following the government's announcement of a $6 billion purchase of longer-dated debt, a move that left some investors unimpressed.

Oil prices surged above $97 a barrel on Thursday, after Brent settled above $101, amid escalating Middle East tensions and concerns over energy supply, further heightening expectations that the Federal Reserve might need to raise interest rates to curb inflation. The combination of higher oil prices and increasing bond yields makes markets particularly vulnerable to Friday's U.S. inflation report, which could influence whether the Fed raises rates this month.

If the inflation report shows a stronger-than-expected reading, it could bolster the case for further rate hikes, putting additional pressure on stocks and bonds. Conversely, softer data might revive speculation that policymakers will remain on hold. Donald Trump downplayed concerns over oil prices and the ongoing war, stating that it will end after the midterm elections, though hostilities have not shown signs of abating.

Iran threatened to escalate its counterstrikes if the U.S. continues attacking its territory and infrastructure, according to a senior Iranian official. The U.S. dollar ended the day at its weakest level in about seven months, while the Japanese yen remained steady after gaining ground in the previous session, when Treasury Secretary Scott Bessent challenged traders to test his resolve in supporting Japan's currency.

Fed officials are cautious about persistently high inflation but divided on how monetary policy should respond, so additional evidence of price pressures could prompt the Federal Open Market Committee to consider a rate hike. Cooler readings would strengthen the argument for maintaining rates unchanged after five consecutive meetings on hold this year.

The Bureau of Labor Statistics will release U.S. producer-price data for August on Thursday, followed by the consumer price index on Friday. Swaps indicate roughly a 62% chance the Fed will raise rates by a quarter point on September 16, up from 60% on Tuesday. At least two rate hikes by mid-next year are now priced in. "A hot CPI print would virtually lock in a September hike and bolster a stronger dollar," said Elias Haddad at Brown Brothers Harriman & Co. "A cooler reading would fortify the case for a hold and leave the dollar vulnerable to a dovish Fed repricing."