South Korea, Japan stocks decline as Asian shares drop on oil, inflation concern
The MSCI Asia Pacific Index falls 1.4% after the S&P 500 Index slips 0.5%
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ASIAN stocks and bonds fell after a surge in oil prices sparked a sell-off in US markets, while the latest inflation data reinforced bets on an imminent US Federal Reserve interest rate hike.
The MSCI Asia Pacific Index fell 1.4 per cent, led by a declines in South Korea and Japan, after the S&P 500 Index slipped 0.5 per cent.
Among the main moves across markets, S&P 500 futures were little changed as at 9.04 am Tokyo time. Hang Seng futures fell 0.8 per cent, Japan’s Topix dropped 1.8 per cent and Australia’s S&P/ASX 200 declined 1 per cent.
Brent crude edged 0.4 per cent higher on Friday (Sep 11) after rising to almost US$110 a barrel in US trading, pushing Treasury yields to multi-year highs.
Bonds came under further pressure after the Treasury bought back less than investors had anticipated. A hotter-than-expected US producer price report also prompted traders to boost wagers on a Fed rate hike next week.
Asian government bonds followed Treasuries lower. Australia’s three-year yield jumped as much as 20 basis points to 5.05 per cent, its highest level since 2011, while New Zealand’s two-year yield climbed over 20 basis points.
There were still some positive pockets in markets. Oracle shares gained about 6 per cent in extended trading after reporting better-than-expected growth in its cloud computing business.
Friday’s US consumer price index report will now be a key test for risk sentiment, with investors looking to see whether higher energy costs are spilling into broader price pressures.
A softer reading may ease the rise in bond yields and rate hike expectations that has weighed on equities, while another upside surprise risks extending the sell-off.
“Yields and oil probably need to come down in order for stocks to work,” said Stephanie Roth, chief economist at Wolfe Research. That could happen, for example, if Friday’s inflation data were to “come in quite soft”, she said.
Treasury yields rose across the curve on Thursday, with the 10-year rate holding just below 5 per cent in early Friday trading, near its highest level since 2023.
The sell-off deepened after the US government purchased fewer 10-to-20-year securities than investors had expected in US Treasury Secretary Scott Bessent’s first expanded buyback operation.
The US producer price index (PPI) rose 0.4 per cent in August from the previous month, the most since May, government data showed.
Swaps are now pricing about a 70 per cent chance of a Fed hike next week and fully discounting a move by October.
European Central Bank President Christine Lagarde added to concerns over tighter global monetary policy, saying the region’s inflation would remain well above target into 2027.
“A hot US PPI print and a hawkish-sounding Christine Lagarde both speak to a reality that points to the possibility a global central bank rate hike cycle may be in the offing, which does not support risk assets today or in the short term,” said Joe Brusuelas, chief economist at RSM US.
Oil’s surge has added another complication for central banks as the conflict around the Strait of Hormuz threatens to keep energy prices elevated.
An increase in attacks on shipping through the critical waterway has pushed up prices for oil, natural gas and diesel, adding to concerns that energy costs will feed through to inflation.
Iran signalled it has no intention of backing down in the face of an American naval blockade and threatened to escalate its strikes if the US continues attacking its territory.
“Rising oil prices will be a concern ahead of the midterms,” said Warren Patterson, head of commodities strategy at ING Groep.
“In order to see prices moving significantly higher, we would need to see recent escalation feeding through to renewed disruptions in oil flows through the Strait of Hormuz.” BLOOMBERG
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