By Ankur Banerjee
SINGAPORE, Sept 10 (Reuters) – Asian stocks slid on Thursday as the biggest wave of attacks on shipping in the widening war in the Middle East kept oil prices above $100 a barrel, leaving investors nervous ahead of U.S. inflation data that will influence near-term monetary policy.
Benchmark 10-year U.S. Treasury yields held steady at 4.8407% after scaling their highest since 2023 in the previous session as the Treasury Department announced a $6 billion buyback of longer-dated bonds that disappointed some investors.
Brent crude futures eased to $101.11 per barrel, having broken through the psychological $100 mark on Wednesday for the first time since July as traders grappled with the prospect of inflationary pressure. [O/R]
“I think that Brent pushing through the $100 level will be seen by many in the market as a significant event in the current scheme of things,” said Nick Twidale, chief market strategist at ATFX Global.
Twidale said traders who had been holding off in hopes of a Middle East peace deal may now “hit the trigger as the realities of a longer conflict kick in.”
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.7%. Japan’s Nikkei eased 0.4% while South Korea’s KOSPI dipped 0.2%.
European stock futures rose 0.25% ahead of an expected rate hike from the European Central Bank later in the day.
“Markets are facing a cocktail of headwinds in September which has historically not been the best seasonal month for stock markets,” said Vasu Menon, managing director of investment strategy at OCBC.
MIDDLE EAST CONFLICT SPREADS AS CENTRAL BANKS MEET
There has also been an escalation in fighting between Saudi Arabia and the Houthis in Yemen, a second theatre of war that threatens global energy supplies from the Middle East as the six-month conflict shows no signs of easing.
Higher oil prices and elevated bond yields have weighed on investor sentiment, setting the stage for a series of central bank meetings in the coming days.
The euro was little changed at $1.16322 ahead of the ECB decision. Market focus is likely to be on policymaker comments to gauge further moves. The Fed and the Bank of Japan are due next week.
U.S. producer price and consumer price inflation reports are due later on Thursday and Friday, respectively, with analysts saying the data will play a key role in whether the Fed hikes rates at its September 15 to 16 meeting.
Fed funds futures traders are pricing in about 60% odds of a rate increase next week.
“The bond market is under pressure as oil prices reignite inflation fears. But it’s not just oil we should be watching,” said Prashant Newnaha, senior rates strategist at TD Securities.
“Agricultural commodities are now breaking out and they are likely to lift food’s contribution to CPI in coming months. At a minimum the stage is set for headline CPI remaining elevated until early 2027.”
YEN RALLY HINGES ON A HAWKISH BOJ NEXT WEEK
The BOJ is widely expected to raise interest rates and analysts say the communication from officials will need to be hawkish to sustain the recent yen rally. The Japanese yen was at 153.63 per U.S. dollar, having firmed 4% in September.
The sharp rise has been driven by heightened expectations of faster BOJ rate hikes, traders exiting short positions in the Japanese currency and early signs of a potential rush of repatriation of Japanese capital.
The BOJ may eventually be forced to raise rates rapidly if inflation accelerates given the country’s loose financial conditions, board member Kazuyuki Masu said, warning of price risks that solidify the chance of a September hike.
Investor attention will stay on the bond market. After a selloff pushed 30-year yields to their highest level since 2007, Treasury Secretary Scott Bessent in August said that the government would increase buybacks of longer-dated bonds.
“Bessent has laid down the gauntlet to a group of sophisticated traders who don’t like to be told what to do,” said Matt Simpson, senior market analyst at StoneX. “He may win a battle or two, but he’ll only win the war if bond traders let him.”
(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong and Kim Coghill)
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