Asian Stocks Slip as Oil Rebounds Amid Fed Rate Hike Fears

Asian stock markets mostly declined on Tuesday, while oil prices recovered some losses as investors weighed easing geopolitical tensions alongside growing expectations that the U.S. Federal Reserve could adopt a more aggressive stance on interest rates to combat inflation.

MSCI’s broad Asia-Pacific index excluding Japan fell 0.5%, reflecting cautious investor sentiment across regional markets. U.S. stock futures also pointed lower, with S&P 500 e-mini futures down 0.2%. Meanwhile, Brent crude oil gained 0.2% to trade at $78.03 per barrel after the United States eased sanctions on Iran, helping stabilize energy market expectations.

Japan’s Nikkei 225 slipped 0.6%, despite fresh economic data showing strong manufacturing growth in June. New orders expanded at their fastest pace in more than four years, highlighting continued resilience in the country’s industrial sector. South Korean equities experienced volatile trading and were last down 2%, while Taiwan’s benchmark index rose 0.9%, reaching a fresh record high.

Market analysts noted a shift in investor preferences away from high-growth technology and artificial intelligence-related stocks toward more defensive sectors with stable cash flows. This rotation contributed to weakness in major U.S. indexes overnight, with the S&P 500 losing 0.4% and the Nasdaq Composite falling 1.3% as large-cap technology shares came under pressure.

Oil prices had previously fallen more than 3% after U.S. officials reported progress in negotiations with Iran and confirmed that the Strait of Hormuz remained open, easing concerns over global energy supply disruptions.

In foreign exchange markets, the Japanese yen traded near 161.55 per dollar, remaining close to multi-decade lows. The British pound held steady at $1.3247 following Prime Minister Keir Starmer’s announcement that he would step down, setting the stage for an expected leadership transition.

The U.S. dollar index hovered near a one-year high at 101.04 as traders increased bets on additional Federal Reserve rate hikes. Fed funds futures now indicate a 54% probability of at least two quarter-point rate increases before year-end, significantly higher than expectations from a week earlier.

Elsewhere, the yield on the benchmark 10-year U.S. Treasury note stood at 4.501%, while gold slipped 0.2% to $4,180.38 per ounce. Cryptocurrency markets also weakened, with Bitcoin falling 0.8% to $63,873 and Ether declining 0.5% to $1,724 as investors reduced exposure to risk-sensitive assets.