Asian stocks decline as oil surpasses $100 and inflation fears

Asian stocks fell on Thursday, with oil prices remaining above $100 a barrel, after the largest wave of attacks on shipping traffic since the outbreak of war in the Middle East led to escalating fears of supply disruptions and the return of inflationary pressures, ahead of the release of US inflation data that may affect the course of monetary policy.

US 10-year Treasury bond yields stabilized at 4.8406 percent, after recording in the previous session their highest levels since 2023, following the US Treasury Department’s announcement of a program to buy back long-term bonds worth $6 billion, a size that disappointed some investors who were expecting a larger operation.

Brent crude futures rose slightly to about $101.40 per barrel in early trading, after Wednesday exceeding the $100 barrier for the first time since July, bringing to the fore the risks of rising energy costs being transmitted to global inflation.

Nick Tweddle, chief market strategist at ATFX Global, said that Brent exceeding the $100 level “will be viewed by many in the market as an important event in the current circumstances,” expecting global bond yields to rise as markets reassess the repercussions of high inflation in the coming months.

He added that this development may push some investors who were postponing taking new positions in the hope of reaching a peace agreement in the Middle East to move, with the increasing possibility of the conflict continuing for a longer period.

The broader MSCI index of Asia-Pacific stocks outside Japan fell by 1 percent, while Japan's Nikkei and South Korea's KOSPI fell by more than 1 percent.

“Markets face a mix of headwinds in September, which is historically not the best month of the year seasonally for equity markets,” said Vasu Menon, managing director of investment strategy at OCBC.

Central bank accounts

Rising oil prices coupled with rising bond yields have put pressure on investor sentiment, as markets prepare for a series of central bank meetings in the coming days.

The euro settled at $1.16322 before the European Central Bank’s decision on interest rates. Markets expect an interest rate hike, while attention will be focused on policy makers' statements, searching for signs of the next steps.

The Federal Reserve and the Bank of Japan are scheduled to meet next week, at a time when markets are awaiting US producer price data on Thursday and consumer price data on Friday.

The data is of particular importance to US interest expectations, as dealers in federal funds futures contracts are pricing in a probability of about 60 percent to raise interest at the council meeting scheduled for September 15 and 16.

“The bond market is under pressure as oil prices reignite inflation fears,” said Prashant Neoha, chief interest rate strategist at TD Securities. But oil is not the only factor that should be monitored.

He added that the prices of agricultural commodities have also begun to rise, which may increase the contribution of food to the consumer price index in the coming months, expecting general inflation to remain high until at least early 2027.

The yen is anticipating a tough stance from the Bank of Japan

In the currency market, the Japanese yen is awaiting the Bank of Japan's meeting next week, amid widespread expectations that the bank will raise interest rates, while analysts believe that the continued rise of the currency requires the issuance of more stringent signals regarding the pace of raising interest rates in the future.

The yen reached 153.63 against the dollar, after rising by about 4 percent during September.

The rise of the Japanese currency was driven by increased expectations regarding an acceleration in the pace of raising interest by the Bank of Japan, in addition to the exit of traders from selling positions on the yen, and the emergence of initial indicators of the possibility of an acceleration in Japanese investors returning their money to the local market.

Carol Kong, currency strategist at Commonwealth Bank of Australia, said that the failure to raise rates, coupled with the absence of clearer signs of an acceleration in the pace of tightening next week, could lead to a sharp return to the yen's weakness.

Kong expects a rate hike next week, followed by two more hikes in December and April.

Korean stocks fell more than 1 percent in Thursday's trading, as investors' appetite for risk declined due to escalating tensions in the Middle East, at a time when record government bond yields rose.

The main KOSPI index fell 96.61 points, or 1.37 percent, to 6,955.03 points by 00:58 GMT.

The decline came in the wake of a new escalation in the Gulf region, after Iran announced on Wednesday that it had attacked 10 ships near the Strait of Hormuz, after the United States sank 5 Iranian oil tankers, in the largest wave of mutual attacks on shipping traffic since the outbreak of the war six months ago.

Chip company shares were under pressure, with Samsung Electronics falling 1.67 percent, while its competitor SK Hynix fell 1.35 percent.

The shares of the battery company “LG Energy Solutions” also fell by 0.81 percent, and the shares of “Hyundai Motor” and “Kia” fell by 0.77 and 0.39 percent, respectively.

In other sectors, the stock of the steel company “Posco Holdings” fell 0.30 percent, while the stock of the pharmaceutical company “Samsung Biologics” fell 1.72 percent.

Of the 906 shares traded, 197 shares rose, while 666 shares declined, an indication of the widening scope of selling pressures.

Foreign investors recorded net stock sales of 219.3 billion won ($163.94 million).

The won is rising

In the currency market, the Korean won recorded 1,339.3 against the dollar on the local settlement platform, up 0.07 percent from the close of the previous session at 1,340.2 won to the dollar.

In external trading, the won rose to 1,337.8 to the dollar, an increase of 0.1 percent during the day, while the price of a one-month won contract in the non-deliverable futures market reached 1,337.4 to the dollar.

Despite the decline in stocks during the session, the KOSPI index is still up 65.04 percent since the beginning of the year, while the won rose 7.5 percent against the dollar during the same period.

Bond yields rise

In cash and debt markets, September futures contracts for three-year Korean Treasury bonds fell 0.07 points to 102.97 points.

The yield on three-year Korean government bonds, the most liquid, rose 3 basis points to 3.936 percent, while the benchmark 10-year yield rose 5.3 basis points to 4.443 percent.

The rise in returns, at a time when stocks are under pressure, reflects a shift in the pricing of risks in Korean markets, in light of mounting concerns about the repercussions of rising energy prices and disruption of shipping traffic in the region.