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Asian stock markets fell on Monday as renewed U.S.-Iran fighting heightened geopolitical risks, pushed oil prices higher and added to inflation concerns at a time when investors are increasingly pricing in another Federal Reserve interest rate hike.
Brent crude futures climbed 1.4% to $89.38 a barrel after U.S. forces struck two Iranian launchers on Larak Island on Sunday. Iran subsequently attacked U.S. forces stationed in Jordan, according to Fox News. U.S. crude also gained 1.3% to $84.50 a barrel.
The escalation added to inflation worries following Federal Reserve Chair Kevin Warsh’s hawkish remarks on Friday. Markets raised the probability of a September Fed rate hike to 57%, sending short-term U.S. Treasury yields higher.
JPMorgan chief U.S. economist Michael Feroli said the bank still expects the next rate increase in December but acknowledged that September remains a possibility. Investors will closely watch Friday’s U.S. August employment report and September 11 consumer inflation data for clues on Fed policy.
Economists expect U.S. payrolls to increase by 58,000 in August after falling by 23,000 in July, while unemployment is forecast to remain at 4.1%.
Higher bond yields and geopolitical uncertainty weighed heavily on Asian equities. Japan’s Nikkei dropped 2.1%, South Korean shares declined 2.4%, and MSCI’s broad Asia-Pacific index excluding Japan lost 0.7%.
European and U.S. stock futures also weakened. EURO STOXX 50 futures fell 0.5%, DAX futures slipped 0.4%, S&P 500 futures declined 0.3%, and Nasdaq futures dropped 0.5%.
Currency markets remained focused on the Japanese yen, which traded near 160 per dollar. U.S. Treasury Secretary Scott Bessent described recent yen weakness as “pretty well contained,” reducing expectations of another immediate joint U.S.-Japan currency intervention.
Two-year Treasury yields held around 4.36% after surging nearly 12 basis points on Friday. Gold edged higher to $4,454 an ounce after dropping 3.2% in the previous session.
Investors are also awaiting central bank decisions this week, with New Zealand expected to raise rates while the Bank of Canada is widely forecast to keep borrowing costs unchanged.
