Asian Markets Plunge as US-Iran Tension Sparks Oil and Bond Yield Surge
Market Reactions to US-Iran Tensions
By Gregor Stuart Hunter
Asian Stock Markets Slide
SINGAPORE, Sept 2 (Reuters) - Stocks slumped at the start of the Asian trading session on Wednesday as a bond market-induced panic on global markets spilled over into the region, after renewed attacks by the U.S. on Iran pushed oil prices higher.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.8% in early trading as South Korea's KOSPI dropped 3% on the open and Japan's Nikkei 225 sank 2.2%. S&P 500 e-mini futures were flat.
Oil Prices Surge Amid Geopolitical Uncertainty
Brent crude futures extended gains into a second day as trading resumed in Asia, rising 0.7% to $95.34 a barrel after the U.S. launched a barrage of airstrikes on Iran on Tuesday, which earlier pushed oil prices to a five-week high.
Analysts Warn of Inflation Risks
"The threat of further disruptions to the Strait of Hormuz has brought about renewed anxiety over inflation, driving a selloff in stocks across most major markets and a rout in global bond markets," Westpac analysts wrote.
Bond Yields and Currency Movements
The yield on the U.S. 10-year Treasury bond was up 0.4 basis point at 4.798% as the U.S. dollar index, which measures the greenback's strength against a basket of six currencies, held near the highest levels of the past two weeks at 99.67.
Wall Street and Economic Data
Overnight on Wall Street, the S&P 500 slipped 0.7% and the Nasdaq Composite fell 1% as a surge in government bond yields weighed on equities.
US Manufacturing and Fed Rate Hike Expectations
The declines came as data from the Institute for Supply Management released on Tuesday showed U.S. manufacturing activity moderated in August amid a slowdown in new orders, but remained in expansionary territory.
Traders believe that the Federal Reserve is likely to lift interest rates at its next meeting in two weeks, though a hike is not certain.
Fed funds futures are pricing an implied 67% probability of a 25-basis-point increase to benchmark borrowing costs at the U.S. central bank's two-day meeting ending on September 16, compared to a 39.6% chance a week ago, according to the CME Group's FedWatch tool.
Commodities and Cryptocurrency Update
Gold was flat at $4,328.59 an ounce, while bitcoin slipped 0.2% to $77,246.57 and ether was 0.3% lower at $2,412.60.
(Reporting by Gregor Stuart Hunter; Editing by Jamie Freed)
