I'm LongbridgeAI, I can summarize articles.Asian shares slid as oil prices spiked due to Middle East supply concerns, fueling global inflation fears. Investors anticipate rate hikes from the US Federal Reserve and Japan's Bank of Japan this week. Brent crude rose 3% to $107.84/barrel, while US Treasury yields increased. Markets are pricing in an 86% chance of a Fed hike on Wednesday, with analysts debating whether this marks a sustained tightening cycle or a temporary adjustment.
[SYDNEY] Share markets slid in Asia on Monday (Sep 14) as supply concerns caused oil prices to spike anew, while investors braced for possible interest rate hikes in both the US and Japan this week.
Brent climbed 3 per cent as new strikes on Saudi Arabia and on ships in the Gulf tested nerves, after an attack on a Saudi oil pipeline and an advance by Yemen’s Houthis threatened to worsen the wartime disruption to global energy supplies.
A meeting in Oman between Iran and Gulf Arab states, scheduled for Monday to discuss a deal on opening the Strait of Hormuz, was postponed.
With shipping through the strait and the Bab el-Mandeb under threat, analysts fear oil prices could stay elevated for a lengthy period, stoking inflation globally.
An uncomfortably hot US consumer price report on Sep 11 led markets to price in an 86 per cent chance the US Federal Reserve will lift rates by 25 basis points on Wednesday, and move again by December. It would be the first hike since mid-2023.
“We now expect the Fed to hike twice this year, in September and December,” said Michael Feroli, chief US economist at JPMorgan. “At this stage, failing to back up words with action could put the credibility of the institution at risk.”
“Whether these actions represent a limited recalibration or mark the start of a more sustained hiking cycle will depend on incoming data,” he added. “We anticipate the former scenario but see risks for the latter.”
Brent futures were last up 3.1 per cent at US$107.84 a barrel, having gained almost 9 per cent in the week ended Sep 13, while US crude rose 2.8 per cent to US$102.85 a barrel.
Nikkei futures were down 2 per cent at 63,260, compared with a cash close of 64,011. On Wall Street, S&P 500 futures lost 0.5 per cent, while Nasdaq futures fell 1 per cent.
High yields test equity valuations
US Treasury futures were a shade firmer in early trading, having been sold heavily in recent weeks. Just last week alone, 2-year yields rose a steep 26 basis points over the week, while 10-year yields added 19 basis points as the curve flattened.
Ben Snider, chief US equity strategist at Goldman Sachs, said strong corporate earnings should provide support for Wall Street if borrowing costs rise.
“Equities typically struggle when the Fed starts to hike rates, but we expect the bull market to continue,” he added. “The S&P 500 has generated an average three-month return of -2 per cent at the start of seven hiking cycles during the last few decades.”
“Yet the S&P 500 has generated an average return of +9 per cent during the 12 months following the first hike.”
Markets also imply around a 76 per cent chance the Bank of Japan will lift its cash rate by a quarter point, to 1.25 per cent, when it meets on Friday. The BOJ is also expected to sound hawkish on further tightening as it struggles to prevent a relapse in the yen after market intervention helped to pull it from a 40-year low.
The US dollar was holding at 153.77 yen, having fallen around 4 per cent over the last two weeks and away from a July peak of 163.99. The euro was also little changed at US$1.16, having found support at US$1.157 on Sep 11.
Sterling was flat at US$1.3518 with the Bank of England expected to hold its rates at 3.75 per cent on Thursday, though the decision could again be split.
In commodity markets, gold slipped 0.3 per cent to US$4,336 an ounce, as higher bond yields diminished the lure of the non-interest-paying metal. REUTERS