Most Asian Markets Fall As Oil Tops $100 Before Fed Meeting

Most Asian stock markets struggled again on Tuesday as oil prices extended gains and investors bet on a Federal Reserve interest rate hike this week, though tech firms saw a slight recovery from a sell-off driven by concerns over the artificial intelligence (AI) boom. With the crisis in the Middle East showing few signs of abating and Yemen’s Houthi rebels taking control of a crucial shipping outlet, crude has risen this month to more than $100 a barrel, adding to global inflation worries. Both main contracts climbed more than 1 percent on Tuesday.

The group, which is fighting the Saudi-backed, internationally recognized government, last week seized control of Yemen’s Red Sea coast and the Bab Al-Mandab Strait, which has become vital as the wider US-Iran war chokes the Strait of Hormuz. Riyadh shut its East-West pipeline at the weekend following drone attacks by the Houthis.

The rally in crude prices was pared slightly on Monday when US President Donald Trump said on Truth Social: “The failing Nation of Iran wants to make a deal, quickly and badly.

I will determine whether or not the USA. will choose to engage - The concept of which we are open to.” The surge in energy costs, with US diesel used in transport and agriculture topping $6 a gallon on Friday, has increased pressure on central banks to temper rising inflation. 

The 10-year US Treasury yield was sitting just below 5 percent, having passed that level on Monday for the first time since October 2023. 

With the European Central Bank lifting rates last week, focus is now on the Fed, with traders pricing in a more than 90 percent chance that it will also hike.

After a sell-off on Wall Street’s three main indexes, Asia mostly retreated. Hong Kong, Shanghai, Sydney, Singapore, Wellington and Taipei all dropped, while Tokyo, Seoul and Manila edged up. A small bounce in tech firms supported South Korean and Japanese stocks following Monday’s losses, which came after Anthropic chief executive Dario Amodei called for a coordinated slowdown of AI development to better understand the risks. The comments drew support from other industry leaders including Elon Musk and OpenAI’s Sam Altman.

Samsung and SK hynix edged up in Seoul, while Kioxia and SoftBank posted gains in Tokyo, though they did not recover all of Monday’s losses. The latest AI upheaval follows a run-up in August after July’s rout, which had been fueled by worries about returns on the vast sums invested in the sector as well as stretched valuations. Analysts said it forced traders to reassess their outlook for the pace of development in the industry after years of rapid growth.

“Hedge funds had spent recent weeks climbing back aboard the technology trade, with positioning rebuilding toward levels seen before the summer washout,” said Stephen Innes at Quintex Intel. “Hyperscalers had attracted much of that buying, while the supply chain remained one of the cleanest expressions of the belief that the AI capex machine would keep running at full throttle. 

That works beautifully as long as everyone agrees the accelerator stays pinned to the floor. It becomes more complicated when the top dogs running the biggest AI engines start discussing speed governors.”