Stocks Fall in Asia as Oil Stokes Inflation Fears: Markets Wrap

(Bloomberg) — Asian stocks fell, following losses in their US peers, as higher oil prices added to concern that inflation will accelerate. Brent crude pulled back from its earlier highs after rising to almost $102 a barrel.

The MSCI Asia Pacific Index dropped 0.6%, with benchmark gauges in Hong Kong and Australian among the biggest decliners. Still, global risk sentiment showed some signs of improving, with both US and European stock-index futures edging higher.

Brent rose as high as $101.94 in early Asian trade after Iran vowed it was prepared for a more intense war. The commodity later erased those gains to be 0.7% lower on the day. Treasury 10-year yield held near Wednesday’s high of 4.85% after the US government’s plan to buy up to $6 billion of longer-dated debt disappointed some investors who had expected a larger increase.

The combination of elevated oil prices and bond yields leaves markets particularly sensitive to Friday’s US inflation report, which may determine whether the Federal Reserve raises interest rates next week. A stronger-than-expected reading may reinforce bets on further tightening and put additional pressure on stocks and bonds, while softer data could damp those expectations.

“Oil-price fluctuations and the upside of some of the near-term escalations that we’ve seen have been some of the key risks that the market has to fathom as we head toward the end of this year,” said Yuting Shao, senior director for global macro strategy at Manulife Investment Management.

Markets largely shrugged off President Donald Trump’s promise to give all adult US citizens a $5,000 dividend if Republicans retain control of both houses of Congress.

“Trump’s US$5,000 may grab headlines, but the market’s real focus right now is on how the US Treasury buyback performs later today and what US CPI has in store for markets tomorrow,” said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities in Singapore.

Oil prices rose Wednesday after Iranian official said the country has no intention of backing down in the face of a US naval blockade and attacks on its oil tankers. Economic pain may be increasing, the official said, but the country’s leaders see the war with the US as posing an existential threat that leaves them little choice but to keep fighting.

“The temperature just got turned up again,” said Kenny Polcari at SlateStone Wealth. “The risk premium is alive and well, and the risk to energy supplies coming out of the Gulf is real.”

The dollar held near a four-month low as traders awaited further US economic data for clues on whether the Fed will raise rates this month. The Bloomberg Dollar Spot Index slipped 0.1% after falling to its lowest since early May on Wednesday.

The euro edged higher against the dollar before a monetary policy decision from the European Central Bank, where policymakers are widely expected to raise interest rates by 25 basis points.

The US Bureau of Labor Statistics will release August producer-price data later Thursday, followed by the consumer-price-index numbers the following day.

Swaps imply about a 62% chance the Fed will raise rates by a quarter point at its Sept. 15-16 meeting, up from 60% odds on Tuesday. At least two rate hikes by the middle of next year are fully priced in.

“A hot CPI print would all but seal a September hike and underpin a firmer dollar,” said Elias Haddad at Brown Brothers Harriman & Co. “A cooler reading would strengthen the case for a hold and leave the dollar vulnerable to a dovish Fed repricing.”

Corporate Highlights:

Apple’s iPhone Duo will improve on rivals’ foldable models, newly appointed Chief Executive Officer John Ternus said, mocking competing handsets as two phones glued together. Alphabet Inc.’s Google is spending €13 billion ($15.1 billion) on artificial-intelligence infrastructure in Finland, its biggest European investment, as the Nordic country’s cold climate and carbon-free power make it a magnet for data center builders. Amazon.com Inc. raised £4.25 billion ($5.8 billion) from its debut sterling bond sale, increasing the size of the four-part deal even as orders from investors tailed off. Dell Technologies Inc. raised $5 billion from an investment-grade bond sale that saw booming investor demand as the company rides a surge in revenue from AI servers. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.2% as of 6:59 a.m. London time Nasdaq 100 futures were little changed Futures on the Dow Jones Industrial Average rose 0.4% The MSCI Asia Pacific Index fell 0.6% The MSCI Emerging Markets Index fell 0.5% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1640 The Japanese yen was little changed at 153.59 per dollar The offshore yuan was little changed at 6.7062 per dollar The British pound was little changed at $1.3558 Cryptocurrencies

Bitcoin rose 0.3% to $78,508.07 Ether rose 0.4% to $2,481.82 Bonds

The yield on 10-year Treasuries was little changed at 4.83% Germany’s 10-year yield advanced eight basis points to 3.44% Britain’s 10-year yield advanced nine basis points to 5.26% Commodities

Brent crude fell 0.7% to $100.49 a barrel Spot gold rose 0.7% to $4,429.02 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess and Faseeh Mangi.

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