Asian stocks fell strongly on Tuesday, led by technology and semiconductor stocks, as the conflict in the Middle East expanded and oil prices continued to rise, which strengthened inflationary pressures and kept the dollar at high levels, at a time when the markets were preparing for an important test with the start of the season of announcing the results of American companies.
Energy prices have returned to the forefront of global market drivers, with investors assessing the repercussions of geopolitical developments in the Middle East and the war between Russia and Ukraine. Brent crude futures reached $105.9 per barrel, near their highest levels in two weeks, amid fluctuations resulting from supply risks after the attacks on Saudi Arabia, versus the possibility of increasing Russian diesel supplies.
Charu Chanana, chief investment strategist at Saxo in Singapore, said that markets are rediscovering the importance of geopolitics when its repercussions are reflected in inflation. She added that the new rise in oil prices is putting pressure on bond yields and limiting the attractiveness of highly valued growth stocks, especially with the fragility of the energy-related truce between Russia and Ukraine and the continuing supply risks in the Middle East.
In stock markets, the broader index of Asia-Pacific shares excluding Japan, affiliated with MSCI, fell by 2 percent in early trading, while the South Korean KOSPI index, which is heavy on technology stocks, fell by 6 percent. Japan's Nikkei index fell 2.6 percent as trading resumed after a holiday.
Kyle Rodda, senior analyst at Capital.com, attributed some of the losses to the wave of selling that affected semiconductor stocks on Wall Street during the previous session, and its effects extended to the Asian markets.
The Nasdaq index fell 0.5 percent on Monday, affected by the losses of chip companies, amid investors’ concerns about the sustainability of the rise in artificial intelligence stocks in light of the intensifying competition between the United States and China. Ruda added that the rise in oil again, along with the concentration of investors ahead of the release of inflation data and the announcement of corporate results, strengthened the tendency to avoid risks in Asia.
This cautious atmosphere helped keep the dollar near its highest levels in 18 months, while the euro was trading at $1.1157, and the Japanese yen at 158.50 yen to the dollar.
The results of American banks are under test
Investors' eyes are turning to US bank results this week, searching for indicators about the impact of the recent rise in Treasury bond yields on lending activities, deal-making, and financing costs.
Inflationary pressures resulting from rising energy prices, coupled with concerns about growing government debt, have led to repeated selling waves in bond markets in recent weeks, pushing borrowing costs to high levels not seen in markets around the world for decades.
Four of the six largest US banks, JPMorgan Chase, Goldman Sachs, Citigroup and Wells Fargo, are scheduled to announce their results later Tuesday.
Anthony Saglimbeni, chief market strategist at Ameriprise Financial, said that investors will look in banks’ results for indicators that families will continue to meet their obligations and borrow and spend at healthy levels.
He added that the third quarter results season begins with stocks close to record levels, which leaves limited room for disappointment, noting that the continued rise of stocks requires strong results from companies and their ability to maintain momentum until the end of the year.
In the bond market, the ten-year US Treasury bond yield fell 2.9 basis points to 5.214 percent during Asian trading, remaining close to its highest level in 24 years, of 5.364 percent, which it recorded last week.
The dollar fell in Asian trading, Tuesday, with oil prices falling and US bond yields stable, at a time when global stocks declined, while investors’ focus shifted to US inflation data expected on Wednesday, searching for new indicators regarding the path of interest rates.
The dollar index, which measures the performance of the US currency against a basket of six major currencies, fell by 0.2 percent to 102.39 points, declining as it approached its highest levels since April of last year.
Ten-year US Treasury bond yields fell 5 basis points to 5.192 percent, with trading resuming after the US bond markets holiday on Monday.
In energy markets, Brent crude futures fell 1.4 percent to $105.20 per barrel, with traders evaluating the possibilities of increasing Russian diesel supplies, despite the continued attacks on Ukrainian energy facilities after US President Donald Trump announced a truce in the energy sector between Moscow and Kiev. Supply risks in the Middle East also remained present following the recent attacks on Saudi Arabia.
The decline in energy costs and the stability of Treasury bond yields contributed to undermining some of the gains made recently by the dollar against major currencies, while a clear wave of demand for the US currency as a safe haven did not appear, despite the decline in stock markets.
The euro rose 0.2 percent to $1.1177, and the British pound rose 0.1 percent to $1.3219. The Japanese yen also rose 0.2 percent to 158.215 yen to the dollar, after data showed that Japanese wholesale producer prices rose by 6.8 percent on an annual basis in September, below market expectations of 7.6 percent, but remained at a level that reinforces expectations of tightening monetary policy.
The Chinese yuan settled in external transactions at 6.6961 yuan to the dollar, near its strongest levels in four years. The Australian dollar also stabilized at $0.6960, after the minutes of the September meeting of the Reserve Bank of Australia, which showed the members’ consensus to raise interest rates for the fourth time this year, with the continued risks associated with the entrenchment of inflation and the possibility of resorting to a fifth increase if necessary.
In New Zealand, the New Zealand dollar rose 0.1 percent to $0.5589, moving away from its lowest level in 18 months.
Inflation determines the path of interest
Markets are awaiting the release of the US consumer price index on Wednesday, amid expectations that the data will reinforce bets on continued monetary tightening. On the other hand, traders still expect the Federal Reserve to keep interest rates unchanged at its next meeting scheduled for October 27 and 28.
Data from the CME Group's Fed Watch tool showed that markets were pricing in a probability of 80.6 percent to keep interest rates unchanged, compared to 82.3 percent on Friday.
Analysts at DBS pointed out that the objections of a number of Federal Reserve officials to raising interest rates in two consecutive meetings limited the dollar’s additional gains.
In cryptocurrency markets, Bitcoin fell 0.4 percent to $82,705.08, and Ethereum fell 1.4 percent to $2,481.40.
The International Monetary Fund raised its forecasts for global economic growth in 2026, based on the ability of advanced economies to withstand the rise in energy prices resulting from the war, but it warned of a widening gap between the economies benefiting from the artificial intelligence boom and low-income countries that are more vulnerable to a supply shock and rising energy costs.
In the “World Economic Outlook” report issued on Tuesday during the annual meetings of the Fund and the World Bank in Bangkok, the Fund raised its global growth expectations to 3.1 percent during the current year, an increase of 0.1 percentage points from its previous estimates, compared to growth of 3.5 percent in 2025.
The Fund's chief economist, Silvana Tenrero, told reporters that the global economy has shown an ability to withstand, but this ability is under increasing pressure, with risks tending towards a decline in growth more than expected.
According to the report, the difference in expectations reflects the impact of two main factors in the global economy: the American war on Iran, which pushed energy prices to rise, and the investment boom related to artificial intelligence, which supported advanced economies, while other countries did not benefit from it to the same extent.
Prices of refined petroleum products remain between 70 and 95 percent higher than pre-war levels, increasing the burden on economies dependent on energy imports. The Fund warned that continued production and transportation disruptions in the Middle East could lead to higher inflation and slower growth.
On the other hand, investment in artificial intelligence technologies contributed to supporting economic activity in a number of advanced economies, while Tenrero said that these technologies constituted a major factor in driving the global economy, and contributed to nearly half of the increase in global trade between 2023 and 2025.
But the Fund warned that this support may decline suddenly if markets reassess their expectations for profits and productivity gains associated with artificial intelligence, which could weaken investment and tighten financial conditions.
Expected contraction in the Middle East and Central Asia
The gap is clearly visible in regional forecasts; The Fund expects the economies of the Middle East and Central Asia to shrink by 0.3 percent during the year 2026, in light of the repercussions of the war and the unrest affecting energy and transportation facilities.
The Fund expected that the Saudi economy would contract by 3.3 percent during the current year, a sharp reduction of 5 percentage points compared to its previous expectations.
However, the report indicated that the region's economies are likely to recover quickly after the end of the war, although the timing of this remains highly uncertain.
In advanced economies, the Fund expects growth of 2.1 percent through 2026, with economies linked to AI supply chains, such as Taiwan and South Korea, recording much higher rates. As for China, the second largest economy in the world, its growth is expected to slow due to weak domestic demand.
At the price level, the Fund expected global inflation to accelerate to 4.7 percent during 2026, with pressures extending to advanced and developing economies.
A call to control spending and protect stability
In light of the rising levels of global debt, the Fund called on governments to control spending and manage borrowing, considering that developing countries face a more difficult task in light of rising energy costs and pressures on their financial and external conditions.
Denise Egan, head of the Fund's Department of Global Economic Studies, said that policymakers must balance immediate needs, including food and energy security, with maintaining economic stability in the medium term.
In turn, Tenrero called on governments to limit measures to reduce the burden of rising energy and other costs to temporary and targeted measures, stressing that monetary policy should remain focused on price stability, which may require raising interest rates to confront high inflation.
She said that the global economy's ability to withstand is beginning to approach its limits, and that the next stage requires moving from containing shocks to rebuilding financial margins and enhancing the ability of the supply side to confront turmoil.
