Shares slip in Asia as oil climbs, rate hikes loom

Asian share markets fell on Monday amid surging oil prices and speculation of interest rate hikes in the U.S. and Japan, according to wire reports. Brent crude climbed 3% following attacks on a Saudi oil pipeline and Yemen's Houthis advancing, disrupting global energy supplies. The meeting in Oman to discuss opening the Strait of Hormuz was postponed, raising concerns that oil prices could remain high for a while, potentially fueling inflation worldwide.

The possibility of a 25 basis point rate increase by the U.S. Federal Reserve on Wednesday sent markets pricing in an 86% chance of such a hike, the first since mid-2023. This could be a limited adjustment or the start of a sustained tightening cycle, depending on upcoming data. JPMorgan's Michael Feroli noted that failing to follow through on statements could harm the Fed's credibility.

Brent futures rose 3.1% to $107.84 per barrel, while U.S. crude gained 2.8% to $102.85. Nikkei futures slipped 2%, and Wall Street's S&P 500 and Nasdaq futures both declined around 1%. Treasury yields rebounded after recent selling, with two-year and 10-year yields increasing 26 and 19 basis points, respectively, as the yield curve flattened.

Goldman Sachs' Ben Snider believed strong corporate earnings would support equities if rates rise. The S&P 500 has historically seen a 9% return in the year following the first rate hike, though it usually drops 2% at the start of seven hikes in recent decades. The Bank of Japan is expected to raise its cash rate by 0.25% to 1.25% in a meeting on Friday, with a 76% chance of further tightening to curb the yen's decline. The dollar remained stable at 153.77 yen, and the euro was relatively unchanged at $1.1600.