The Japan Times - Most markets drop as oil extends gains ahead of expected US rate hike

With the crisis in the Middle East showing few signs of abating and Yemen's Houthi rebels taking control of a crucial outlet for shipping, crude has spiked this month to more than $100 a barrel, ramping up global inflation worries.

Both main contracts climbed more than one percent Tuesday.

The group, fighting the Saudi-backed, internationally recognised 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, meanwhile, shut its East-West pipeline at the weekend following drone attacks by the Houthis.

The rally in crude prices was pared slightly 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 U.S.A. will choose to engage - The concept of which we are open to."

The surge in energy costs -- US diesel used in transport and agriculture topped $6 a gallon Friday -- has ramped up pressure on central banks to temper a surge in inflation.

The 10-year US Treasury yield was sitting just below five percent, having topped that level 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 a more than 90 percent chance that it will also hike.

After a selloff on Wall Street's three main indexes, Asia mostly retreated.

Hong Kong, Shanghai, Sydney, Singapore, Wellington and Taipei all dropped.

But Tokyo, Seoul and Manila edged up.

A small bounce in tech firms provided support to South Korean and Japanese firms following Monday's losses that came after Anthropic CEO Dario Amodei advocated for a coordinated slowdown of AI development to better understand the risks.

The comments got 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 enjoyed healthy gains in Tokyo, though they did not recover all Monday's losses.

The latest AI upheaval comes after a healthy run-up in August following July's rout, which had been fuelled by worries about returns on the vast sums invested in the sector as well as extended valuations.

And analysts said it forced traders to reassess their outlook for the speed of development in the industry following years of breakneck 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," he added.

"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."

The remarks sent shudders through chipmakers particularly, with the Philadelphia Semiconductor Index tumbling 5.9 percent -- its biggest drop in more than two months, according to Bloomberg.

Fiona Cincotta at FOREX.com said: "There are some questions surrounding the motive behind such announcements, with some investors suggesting that it could be a way to stifle smaller competitors.

"Still, the market wasn't thinking twice. Losses in tech stocks are setting the tone for markets ahead of a potential Fed rate hike this week."

- Key figures at around 0230 GMT -

West Texas Intermediate: UP 1.3 percent at $102.69 per barrel

Brent North Sea Crude: UP 1.2 percent at $106.92 per barrel

Tokyo - Nikkei 225: UP 0.9 percent at 64,082.36 (break)

Hong Kong - Hang Seng Index: DOWN 0.4 percent at 24,829.78

Shanghai - Composite: DOWN 0.1 percent at 3,882.57

Euro/dollar: DOWN at $1.1538 from $1.1547 on Monday

Pound/dollar: DOWN at $1.3473 from $1.3500

Euro/pound: UP at 85.55 pence from 85.53 pence

Dollar/yen: UP at 154.73 yen from 154.34 yen

New York - Dow: DOWN 0.3 percent at 52,421.20 (close)

London - FTSE 100: UP 0.4 percent at 10,697.57 (close)

Y.Hara--JT