Asian markets fall as oil tops USD 100 on US-Iran tensions

Asian markets and Wall Street weakened as oil held above USD 100 amid escalating US-Iran attacks. The spike in crude, bond yields and inflation fears is increasing pressure on investors and households.

In Short

• Brent crude briefly crossed USD 100, its first breach since July
• Hormuz disruptions have choked a key route for global oil shipments
• Energy shares advanced, but retail counters dragged the broader US market

Asian markets fell on Thursday after Wall Street retreated, as oil prices stayed above USD 100 a barrel amid continued tensions between the US and Iran. US futures, however, were modestly higher in early trade.

Brent crude had jumped 3.4 per cent on Wednesday, crossing USD 100 a barrel for the first time since July, before easing slightly to about USD 101 early Thursday. The latest attacks between the US and Iran have disrupted oil flows through the Strait of Hormuz, and US President Donald Trump said on Wednesday that oil prices were unlikely to fall until after the US midterm elections.

In Asia, Japan's Nikkei 225 fell 0.8 per cent to 64,597.46, while South Korea's Kospi dropped 0.9 per cent to 6,989.06. Hong Kong's Hang Seng lost 1.4 per cent to 24,932.95, and the Shanghai Composite index slipped 0.3 per cent to 3,939.43. In Australia, the S&P/ASX 200 declined 1.5 per cent to 8,774.50, while Taiwan's Taiex was down 0.8 per cent.

On Wall Street on Wednesday, the S&P 500 fell 0.5 per cent, the Dow Jones Industrial Average dropped 0.8 per cent and the Nasdaq composite lost 0.6 per cent. The indexes are all on track for a weekly loss. Oil prices were a major driver of trading after the US destroyed five Iranian tankers on Tuesday in a series of attacks between the two countries. The conflict, which began in February, has largely shut down traffic in the Strait of Hormuz, through which a fifth of the world's oil supply had passed before the war began.

Retail stocks were among the main drags on the market. Amazon fell 1.8 per cent, Starbucks lost 1.9 per cent and Home Depot dropped 1 per cent. Every sector in the benchmark S&P 500 declined except energy, which rose as oil companies gained. Exxon Mobil climbed 2.2 per cent and Chevron added 1.9 per cent.

The rise in oil prices during the conflict has pushed up the cost of many goods. Petrol prices in the US are up about 32 per cent from a year ago to USD 4.22 a gallon. Higher fuel costs directly affect household budgets and also raise prices indirectly through higher shipping costs. Diesel, which is widely used in shipping and production, hit a record high on Friday and has continued to rise. The average price reached USD 5.94 a gallon overnight and is now 9 cents higher than it was on Friday.

Inflation was already proving difficult to contain when the US began its war against Iran, partly because of its trade war with much of the world. Fresh data on wholesale prices was due later on Thursday through the Producer Price Index for August, which tracks the prices businesses pay for goods before they reach consumers. That will be followed on Friday by the Consumer Price Index for August, which shows the more direct impact on households. The latest reports are expected to show inflation staying above 3 per cent, higher than the Federal Reserve's 2 per cent target.

Elsewhere on Wall Street, Meta Platforms rose 6.6 per cent after the parent company of Instagram and Facebook launched a personal artificial intelligence agent, Muse, for people aged 18 and above seeking help with day-to-day tasks such as schedules and shopping.

Rising Treasury yields also weighed on stocks on Wednesday. The US Treasury Department said it would buy back up to USD 6 billion in long-term debt. The move followed an announcement in August that had outlined plans for an unusually large buyback aimed at containing rising yields, which increase borrowing costs for companies and also put pressure on other investments such as stocks. Bond yields had been steady before the announcement but moved higher soon after. In early Thursday trading, the US dollar fell to 153.42 Japanese yen from 153.54 yen, while the euro rose to USD 1.1640 from USD 1.1632.

Overall, markets remained under pressure as higher oil prices, inflation worries and rising bond yields unsettled investors in Asia and on Wall Street.

With PTI Inputs

- Ends