Asian stocks drop as oil spike fans rate hike bets, eyes on US jobs

HONG KONG, Oct 2 — Asian stocks fell Friday as investors fretted over soaring oil prices and bond yields, with upcoming jobs data expected to shed light on the Federal Reserve's next interest rate move. Treasury yields and government debt in numerous major economies spiked on Thursday due to fears that the escalating energy costs from the Middle East crisis would lead central banks to raise borrowing costs well into the following year.

Although they softened early Friday, uncertainty remained across trading floors, exacerbated by fresh worries of another US-Iran conflict. Both main crude contracts climbed, extending the previous day's rally as Washington and Tehran remained deadlocked and unable to reopen the Strait of Hormuz. Speculation has arisen that the U.S. military could dispatch additional warships, jets, and troops to the region, with the USS Theodore Roosevelt aircraft carrier potentially arriving next month.

Rising fuel costs have fueled inflation since the war's onset in February, prompting rate hike expectations and pushing bond yields to levels not seen since the 2000s. According to FOREX.com's Fawad Razaqzada, bond markets now anticipate four more 25-basis-point rate hikes by June 2027, a significant shift from prior year forecasts that called for at least 100 basis points of cuts.

The Bloomberg Commodity Index surged more than 37 percent year-over-year and is poised for one of its largest 12-month gains since the 2022 energy crisis. This surge highlights a resurgence in commodity-driven inflation, complicating central banks' outlook as interest rates persistently rise. Wall Street's positive start did little to bolster Asian markets, with Hong Kong plunging over two percent and Tokyo, Singapore, Wellington, Manila, and Jakarta also declining.

With Shanghai closed for a holiday, Seoul benefited from another jump in chipmakers SK hynix and Samsung, while Sydney and Taipei also gained. The U.S. non-farm payrolls figures later Friday will be closely watched as traders gauge the Fed's next move following last month's rate hike. A below-forecast reading on the bank's preferred inflation measure this week helped to ease concerns for a second consecutive increase on October 28, but a robust jobs report could bolster the case for another rate hike.

Optimism for a hold has been bolstered this week by officials urging a measured approach. Vice Chair Philip Jefferson stated that policymakers should decide after "carefully examining trends in the data," while Michelle Bowman expressed no "current need for further action." New York Fed chief John Williams emphasized that "there is no urgency, and we have time to gather more information."

However, Dallas Federal Reserve President Lorie Logan cautioned that the target range may need to rise by an additional 50 basis points or more to adequately balance the outlook and risks for the dual mandate goals.