Asian stock markets drop amid a sharp rise in oil prices and mounting concerns over global inflation, prompting expectations of imminent monetary policy tightening by major central banks, including the US Federal Reserve and Bank of Japan.
Asian shares fell on Monday as a fresh jump in oil prices unsettled investors already worried about higher borrowing costs in the United States and Japan. Reuters reported that Brent crude climbed about 3% after strikes in the Gulf and renewed attacks on Saudi energy infrastructure revived fears over supply disruption, with traders also watching the risk to shipping routes through the Strait of Hormuz and the Bab el-Mandeb.
The move in energy markets fed directly into inflation concerns. Analysts told Reuters and Investing.com that sustained pressure on oil could lift transport and goods costs worldwide, making it harder for central banks to ease policy. Kiplinger said August consumer prices in the US rose 0.4% from July, with annual inflation holding at 3.4%, reinforcing expectations that the Federal Reserve will act this week.
Markets have moved sharply towards a rate increase from the Fed after a hotter-than-expected inflation reading and a strong run in oil. Reuters cited JPMorgan economist Michael Feroli as saying the central bank now faces pressure to back up its guidance with action, while market pricing implied an 86% chance of a quarter-point increase. Kiplinger said the Federal Open Market Committee meets on 15-16 September, with a decision due on Wednesday.
The pressure was not limited to the US. Reuters said traders were also pricing in about a 76% chance that the Bank of Japan will lift its short-term rate when it meets on Friday, as officials try to prevent the yen from weakening again. The dollar was holding near 153.77 yen, well below its July peak, while sterling was steady ahead of the Bank of England’s expected decision to leave rates unchanged. Higher bond yields also weighed on gold, which slipped as the appeal of non-interest-bearing assets faded.
Equity markets reflected the strain. Reuters said Nikkei futures fell, while S&P 500 and Nasdaq futures also dropped in early trade. Investing.com and Malay Mail both reported that Asian shares had come under broad pressure as crude moved above $100 a barrel, with investors fearing that higher energy costs and tighter monetary policy could further squeeze company earnings and consumer demand.
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