Asian stocks dive as focus on earnings, geopolitics

Asian equities experienced a sharp decline on Tuesday, primarily driven by technology shares, as the widening conflict in the Middle East caused oil prices to soar, bolstering the dollar ahead of an earnings season that will set the tone for the rest of the year. Energy prices once again dominated global markets as investors grappled with geopolitical developments in the Middle East and Russia-Ukraine conflict, with Brent crude futures nearing a two-week high at $105.9 per barrel.

The volatile oil market, fueled by supply risks from attacks on Saudi Arabia and potential additional diesel supplies from Russia, has put pressure on yields and dampened the appeal of expensive growth stocks, especially as the Russia-Ukraine energy truce appears fragile, and Middle East supply risks remain a concern.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 2% in early trading, with tech-heavy South Korea's KOSPI falling 6%. Japan's Nikkei also declined 2.6%, returning from a holiday. Analysts attribute much of the market's decline to the tech sector's selloff overnight on Wall Street, which has spilled over to the Asian region. The tech-heavy Nasdaq fell 0.5%, dragged down by chipmakers as investors worry about the sustainability of the rally in AI stocks amidst increased competition between the US and China.

The cautious sentiment contributed to the US dollar nearing an 18-month high, with the euro trading at $1.1157 and the Japanese yen at 158.50 per US dollar. Investors are closely monitoring the upcoming US bank earnings this week to gauge the impact of recent Treasury yield increases on dealmaking, lending growth, and funding costs across the industry.

Four of the six largest US lenders, JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo, are set to report results later in the day. Analysts are eager to see if households continue to meet their financial obligations, borrow, and spend at healthy levels.

The Q3 earnings season began with stocks near record highs, leaving little room for disappointment. Strategists believe that corporate America must deliver more A's and B's on their latest report cards and maintain this momentum into year-end for stocks to continue their upward trajectory. Currently, the benchmark 10-year yield stands at 5.214%, remaining close to the 24-year high of 5.364% it reached last week.