Asian shares slump as surging oil prices inflame inflation risks

Global bond yields surged to record highs and stock markets plummeted on Friday, as surging oil prices stoked concerns of rising inflation worldwide. Brent crude oil reached a four-month peak of US$109.97 a barrel, following a 6% jump overnight, marking a weekly increase of nearly 13%. The tension between the US and Iran, coupled with the Houthis seizing control of Yemen's Mocha port, threatened Saudi oil exports through the Red Sea, further tightening global oil supplies.

Helima Croft, RBC Capital Markets' head of global commodity strategy, warned that Brent crude could soar to US$121.99 a barrel later in the year if the Saudi-Houthi conflict escalates. This development alarmed investors who began factoring in the risk of prolonged conflict into their investment decisions. Meanwhile, US President Donald Trump's remarks about the war potentially extending beyond the November midterm elections added to the uncertainty.

Consequently, global bond yields, especially the 10-year Treasury yield, climbed to 4.9708%, its highest level in three years, just shy of the 5% threshold, which increased borrowing costs for the US government's $40 trillion debt. Similarly, 30-year yields hit a 19-year peak of 5.3803%, impacting US mortgage rates and dampening the housing market.

China's benchmark 10-year yield rose 19 years to 5.3803%, intensifying pressure on Asian stocks. The MSCI's broadest Asia-Pacific index outside Japan shed 1.8% while Japan's Nikkei fell 2.8%. Chinese blue-chips declined 1.2% and Hong Kong's Hang Seng index fell 1.5%. In response, Nasdaq and S&P 500 futures experienced marginal losses.

The US dollar strengthened amid higher Treasury yields, remaining stable at 99.04. Meanwhile, gold saw a modest 0.3% gain to $4,328 an ounce, despite initially slipping nearly 2% overnight, failing to attract safe-haven demand.