Asian equities moved lower on Monday as renewed U.S.-Iran military tensions drove oil prices higher, while expectations for a U.S. interest-rate increase strengthened following Federal Reserve Chair Kevin Warsh’s comments.
In the morning session, Japan’s Nikkei dropped 1.56% to 65,367.37 points. The Shanghai Composite slipped 0.26% to 3,941.94 points while the Hang Seng Index fell 0.92% to 25,348.50 points. Additionally, Korean Kospi plunged 2.15% to 6,642.61 points and Australia’s ASX200 remained flat at 9,091.90 points.
Wall Street also ended lower in the previous session. The Dow Jones Industrial Average fell 9.45 points, or 0.02%, to 53,559.99, while the S&P 500 declined 19.23 points, or 0.25%, to 7,711.76. The Nasdaq Composite dropped 138.929 points, or 0.52%, to 26,402.423.
The escalation has added to concerns over inflation, particularly as investors reassessed the outlook for U.S. monetary policy after Warsh said on Friday that the Federal Reserve still had more work to do in bringing inflation under control.
Markets have increased the probability of a September rate hike to 62.4%, pushing short-term Treasury yields higher and contributing to a flatter yield curve. There is also about 40% probability for another rate hike in December.
Attention now turns to upcoming U.S. economic data that could influence the timing of the Federal Reserve’s next policy decision. The August employment report due Friday and consumer price data scheduled for September 11 are expected to be key indicators.
Economists expect U.S. payrolls to increase by 58,000 in August after employment unexpectedly fell by 23,000 in July, while the unemployment rate is forecast to remain at 4.1%. According to the source, a significantly weaker jobs report would likely be required to substantially reduce expectations for a September rate increase.
Oil prices advanced sharply, with U.S. crude futures rising 2.40% to $85.40 a barrel and Brent crude gaining 2.64% to $90.43. The gains followed U.S. strikes on two Iranian launchers on Larak Island on Sunday, while Iran was reported by Fox News to be attacking U.S. forces stationed in Jordan.
Gold futures fell 1.04%, or $47.30, to $4,482.60, while silver declined 0.83%, or $0.555, to $66.44.
