Asian stocks skid as oil spike revives inflation fears, bonds take a hit

Asian stock markets experienced a downturn Friday, driven by a sharp resurgence in oil prices above $100 a barrel. This spike, fueled by intensifying conflict in the Gulf, has rattled bond markets and revived fears of a new inflation shock.

Brent crude oil climbed to a two-month high of $102 per barrel after Iran-aligned Houthis attacked Saudi tankers in the Red Sea. These attacks, coupled with Iran's actions near the Strait of Hormuz, have disrupted crucial oil supply routes. The conflict's escalation has seen Brent crude prices soar by nearly 40% in July alone.

"Two of the world’s busiest shipping corridors are under threat in the same month, and markets are only just beginning to work out what that means," noted Nigel Green, CEO of deVere Group. He added, "With that ceasefire now collapsed and oil back above $100, the drop which gave the Fed room to relax may already be reversing ... This looks less like a short-lived spike and more like a genuine reopening of the inflation question."

Adding to inflation worries, the U.S. administration announced higher tariffs on goods from 60 trading partners. This development pushed 30-year Treasury yields near their highest levels since 2007, while benchmark European borrowing costs reached highs not seen since 2011. Markets are now pricing in a more hawkish approach from central banks, with a one-in-three chance of a Federal Reserve rate hike as early as next week, and a September hike is more than fully priced in. The European Central Bank, while leaving rates unchanged, has seen a roughly 70% probability priced in for a September rate hike.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1%, and Japan's Nikkei slid 2.9%. South Korea's KOSPI dropped 3.7%. U.S. Nasdaq futures saw a slight uptick of 0.1%, with Intel's strong earnings offering temporary support against broader concerns about oil prices and interest rates. Wall Street had previously fallen as tech giants Alphabet and Tesla reported significant cash burn for AI infrastructure investments.

“

Two of the world’s busiest shipping corridors are under threat in the same month, and markets are only just beginning to work out what that means. With that ceasefire now collapsed and oil back above $100, the drop which gave the Fed room to relax may already be reversing ... This looks less like a short-lived spike and more like a genuine reopening of the inflation question.