Asian shares slip as markets reprice Fed expectations, oil gains

SINGAPORE: Asian stocks mostly eased and oil prices regained strength early on Tuesday after the US waived sanctions on Iran, while traders grappled with rising expectations the Federal Reserve may take more aggressive action to tackle inflation later this year.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, while S&P 500 e-mini futures slipped 0.2%. Brent crude was up 0.2% at US$78.03 per barrel.

The Nikkei 225 was off 0.6%, retracing some losses after data showed Japan’s manufacturing sector sustained robust growth in June, with new orders surging to their fastest pace in more than four years.

South Korean shares fluctuated between gains and losses and were last 2% lower, while Taiwanese stocks opened 0.9% higher, setting a new high.

“These are far from dull markets,” said Chris Weston, head of research at Pepperstone Group Ltd in Melbourne. “The former generals of the market appear to have lost momentum, and investors are rotating into other areas of the market that are more defensive, less AI-focused and offer more predictable cash flows.”

Stocks on Wall Street moved lower overnight, with the S&P 500 down 0.4%, and the Nasdaq Composite slipped 1.3%, dragged by declines in megacap technology stocks including Alphabet and SpaceX.

Oil prices settled more than 3% lower as supply concerns eased after US Vice-President JD Vance said progress had been made in talks with Iran and that the Strait of Hormuz was open.

In currency markets, the yen was flat against the dollar at 161.55 yen, again approaching its weakest levels in 40 years after a volatile trading session in the US overnight.

Japanese finance minister Satsuki Katayama held an online meeting with US treasury secretary Scott Bessent late on Monday, a source close to the discussion said, as concerns grow over sharp currency swings.

The British pound was flat at US$1.3247 after Prime Minister Keir Starmer said on Monday he would resign, paving the way for what is expected to be an orderly transfer of power to frontrunner Andy Burnham.

The US dollar index, which measures the greenback’s strength against a basket of six currencies, was trading at 101.04, close to its highest since May last year.

Traders are grappling with expectations of an accelerated schedule of rate hikes by a more aggressive Federal Reserve under the leadership of new Chair Kevin Warsh.

Fed funds futures are pricing an implied 54% probability of at least two 25-basis-point hikes before the end of the year, compared with a 15.2% chance a week ago, according to the CME Group’s FedWatch tool.

The yield on the US 10-year Treasury bond was down 0.2 basis point at 4.501%.

Gold was down 0.2% at US$4,180.38. In cryptocurrency markets, bitcoin slid 0.8% to US$63,873.71, while ether was 0.5% lower at US$1,724.08.