Asian Shares Waver as Oil & Yields Rise Before Fed, BOJ Meetings

Asian shares waver as oil and yields rise ahead of Fed, BOJ meetings

Market Overview and Key Drivers

By Satoshi Sugiyama

Geopolitical Tensions and Oil Prices

TOKYO, Sept 15 (Reuters) – Asian shares struggled on Tuesday as investors weighed Middle East tensions and calls by industry figures for a slowdown in AI development, while elevated oil prices and higher bond yields added to caution before key central bank meetings in the U.S. and Japan.   

Middle East Developments

Yemen’s Iran-aligned Houthis launched a new attack on Saudi Arabia on Monday, after Riyadh blamed Iran-backed fighters in Iraq for an attack on the kingdom’s east-west pipeline that it said could disrupt as much as 4% of global oil supply. Gulf Arab states also postponed planned talks with Iran.

Impact on Oil Markets

Renewed supply concerns kept markets on edge,  with U.S. crude rising 1.27% to $102.68 a barrel while Brent was up 1.21% to $106.96 per barrel. 

“Markets are likely to remain focused on the risk that higher crude oil prices could add to inflationary pressures and, in turn, push interest rates higher,” said Yokoo Akihiko, analyst at Mitsubishi UFJ Bank, in a note. 

Technology Sector and AI Concerns

Calls by leading AI figures to slow development continued to reverberate through markets even as U.S. President Donald Trump played down concerns over misuse of the technology, saying existing U.S. safeguards were adequate and that China would benefit from doubts over AI development.

Regional Stock Performance

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.12%, led by South Korea’s 0.25% dip. Japan’s Nikkei edged 0.19% higher after reversing early losses. Chip-related shares were mixed, with South Korea’s Samsung Electronics  losing 0.2% while Japan’s Kioxia  gained 3.3%.

Central Bank Meetings and Monetary Policy

Federal Reserve Outlook

The Federal Open Market Committee begins its two-day meeting later in the day, with markets pricing in a 90% chance of a rate hike that would mark the Fed’s first increase since mid-2023.

Inflation and Rate Hike Expectations

“While inflation continues to decelerate, recent upside surprises mean the pace of disinflation has been slower and less convincing than” the Fed likely requires, analysts at Morgan Stanley said in a report, expecting a 25 basis-point hike on Wednesday and in December. 

“We see arguments for both a hike and a hold, but signs of second-round effects from energy prices, strong demand tied to AI-related investment, a neutral rate that is possibly temporarily higher, and concerns about credibility mean the balance of risks now argues for a somewhat more restrictive policy.” 

Global Bond Yields

Overnight, benchmark 10-year U.S. Treasury yields touched 5% for the first time since 2023, while Germany’s 10-year bond yield climbed above 3.51%, its highest level since 2009. On Tuesday, Japan’s benchmark 10-year government bond yield popped back to 3%.

Bank of Japan Policy

The Bank of Japan is widely expected to raise its interest rate by 25 basis points to 1.25% at the end of its two-day meeting on Friday and signal more tightening ahead. Policymakers are seeking to shore up the yen after intervention helped steer the currency away from a 40-year low.

Currency and Commodity Markets

Currency Movements

In currency markets, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.05% to 99.53, with the euro down 0.03% at $1.1543.

Against the Japanese yen, the dollar advanced 0.17% to 154.61.

Precious Metals

Spot gold eased 0.15% to $4,291.59 an ounce, while spot silver fell 0.31% to $63.03 an ounce.  

(Reporting by Satoshi SugiyamaEditing by Shri Navaratnam)