Asia Stocks Slide as Brent Surges, BOJ Holds Rates: Markets Wrap

(Bloomberg) — Asian equities dropped as attacks on key energy infrastructure in the Middle East drove oil prices higher, underscoring investor concerns that an escalating war will add to inflation pressures.

The MSCI Asia Pacific Index slid more than 2%, snapping a three-day advance, as investors trimmed risk. Japan’s Nikkei 225 slumped 2.5%, with traders also on alert for the yen’s potential breach of 160 against the dollar. The Bank of Japan kept its policy rate unchanged. US equity futures edged higher after the S&P 500 and Nasdaq 100 both fell 1.4% on Wednesday.

Brent crude traded above $112 per barrel as strikes between Iran and Israel on critical energy facilities — which also caused extensive damage to the world’s largest liquefied natural gas export plant in Qatar — raised concerns of a more lasting impact from the conflict.

Oil’s surge already has global central bankers fretting about price pressures. Treasuries sold off across the curve on Wednesday, pushing yields higher, after Federal Reserve Chair Jerome Powell said the conflict has added fresh uncertainty to the inflation outlook. Officials left rates unchanged and continued to expect only one cut in 2026. Yields rose further on Thursday.

“Asia is more vulnerable than other regions to the ongoing interruption in oil, LNG and other input products,” Morgan Stanley strategists including Jonathan Garner and Kristal Ji wrote in a note, recommending investors to sell this week’s rally in the region’s stocks.

Iran carried out attacks on the LNG site in Qatar, one of several energy assets it pledged to target following strikes on the Islamic Republic’s giant South Pars gas field. President Donald Trump said the US didn’t know about Israel’s assault on the field, but threatened to “blow up the entirety” of the deposit with US forces if Qatari assets get hit further.

He said earlier this week that targeting oil infrastructure on Iran’s main export hub, Kharg Island, remains on the table following earlier bombing of military targets there.

Elsewhere in markets, the Philippine peso weakened past the key 60-per-dollar level as elevated oil prices weighed on the country’s economic outlook. A broader gauge of the greenback was down 0.1% after rising 0.5% on Wednesday. Gold prices steadied after tumbling nearly 4% in the previous session.

Powell’s comments prompted traders to scale back expectations for rate cuts, reinforcing a higher-for-longer rate outlook amid volatility in energy markets. They are now pricing in only about 15 basis points worth of Fed easing this year, less than one full quarter-point cut.

In economic forecasts released with their decision, Fed officials raised their outlook for inflation in 2026 to 2.7% from 2.4%. Notably, they saw the core measure — which excludes volatile food and energy categories — also rising to 2.7%.

The yield on two-year Treasuries climbed another two basis points to 3.79% on Thursday after jumping about 10 basis points in the previous session.

BOJ Governor Kazuo Ueda will hold a press briefing later Thursday, usually convened at 3:30 p.m. Tokyo time, to elaborate on the decision and outline his view on the path for interest rates.

“There is little doubt that higher oil prices are starting to have a broader impact, and with volatility elevated, headline risk remains ever present,” Chris Weston, head of research at Pepperstone Group, wrote in a note. “Once again, it is developments in the energy complex that are driving cross-asset flows.”

Beyond the focus on the war, concerns over the health of the private credit market continued to play out. S&P Global Ratings lowered its outlook on Cliffwater LLC’s flagship private credit fund to negative, citing elevated redemption requests. Pacific Investment Management Co. is staying away from private credit loans being put up for sale over quality concerns, its president Christian Stracke said.

Corporate Highlights:

HSBC Holdings Plc is weighing a wave of deep job cuts over the coming years as Chief Executive Officer Georges Elhedery bets on AI to shrink its middle and back office footprint, one of the first signs of how the technology could reshape Wall Street workforces. Tencent Holdings Ltd. plans to at least double investments in AI to more than 36 billion yuan ($5.2 billion) in 2026, the company said in its results that included a December quarter revenue beat. Micron Technology Inc. warned that it will need to spend heavily on production to meet burgeoning demand, overshadowing a generally upbeat forecast from the largest US maker of computer memory chips. Elliott Investment Management has built a significant stake in Align Technology Inc., the maker of Invisalign teeth-straightening products, according to people familiar with the matter. Macy’s Inc. forecast stronger-than-expected sales in the current quarter, a sign that its fiscal year is off to a solid start as middle- and higher-income households continue to spend. General Mills Inc. reported results for last quarter that missed Wall Street projections, weighed down by a decision to lower prices. But executives said they expected to realize the benefits of those reductions in the near future. Artificial intelligence drone software maker Swarmer Inc. surged 1,000% in two days, making it the best debut for a US stock in nearly a year. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.1% as of 11:52 a.m. Tokyo time Japan’s Topix fell 1.9% Australia’s S&P/ASX 200 fell 1.5% Hong Kong’s Hang Seng fell 1.4% The Shanghai Composite fell 1% Euro Stoxx 50 futures fell 1% Currencies

The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.3% to $1.1486 The Japanese yen rose 0.1% to 159.64 per dollar The offshore yuan was little changed at 6.8989 per dollar The Australian dollar rose 0.3% to $0.7046 Cryptocurrencies

Bitcoin fell 0.2% to $71,082.91 Ether rose 0.5% to $2,198.22 Bonds

The yield on 10-year Treasuries was little changed at 4.27% Japan’s 10-year yield advanced 5.5 basis points to 2.260% Australia’s 10-year yield advanced eight basis points to 4.98% Commodities

West Texas Intermediate crude rose 0.9% to $97.21 a barrel Spot gold rose 0.8% to $4,856.04 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess, Richard Henderson, Aleksander Solum and Winnie Hsu.

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