Asian stocks slip as oil jumps on Iran tensions, bond yields rise

Sydney: Asian stock markets mostly declined on Monday as oil prices rose sharply amid doubts over a near-term resolution between the United States and Iran, while bond yields continued to climb ahead of a week packed with key economic releases.

Investor sentiment was affected by renewed concerns over energy supplies after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz. Trump said discussions would continue this week, although Iran has shown no indication of altering its position.

Brent crude rose 2.1 per cent to $106.49 a barrel, taking gains for the month to nearly 18 per cent, while US crude advanced 1.5 per cent to $93.84 a barrel.

Rising energy costs have fuelled concerns that inflationary pressures could become more entrenched, particularly as diesel prices remain at record highs due to limited refining capacity.

Markets now expect further monetary tightening from major central banks. Investors are pricing in a 66 per cent chance that the US Federal Reserve will raise interest rates again in October, with around 90 basis points of additional tightening anticipated by late next year.

Despite concerns over higher rates, strong economic data from the United States has supported expectations for corporate earnings growth.

The Atlanta Federal Reserve's GDPNow estimate is currently forecasting 5 per cent economic growth for the quarter, while economic activity has also remained resilient across parts of Asia and Europe, supported in part by increased investment in artificial intelligence.

In equity markets, Japan's Nikkei was little changed, while South Korea's market fell 2.4 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.6 per cent, while Chinese blue-chip stocks declined 1.4 per cent, extending losses for the month to more than 5 per cent.

US stock futures also edged lower, with S&P 500 futures down 0.3 per cent and Nasdaq futures losing 0.5 per cent.

In contrast, European futures pointed to a firmer open, with EURO STOXX 50 futures gaining 0.4 per cent, DAX futures rising 0.3 per cent, and FTSE futures adding 0.2 per cent.

Bond markets remained under pressure as investors prepared for a heavy schedule of economic data, including inflation, growth and employment reports.

The yield on the 30-year US Treasury bond rose to 5.52 per cent, near its highest level since 2004, while two-year Treasury yields have climbed sharply this month on expectations of further Federal Reserve rate increases.

The US dollar remained firm, with the dollar index at 101.39, near a two-month high.

The euro traded at $1.1380, while the dollar rose 0.3 per cent against the Japanese yen to 157.73.

In commodity markets, gold fell 1.7 per cent to $4,212 an ounce, extending monthly losses as higher bond yields reduced demand for non-yielding assets.