The Japan Times - Asian stocks drop as oil spike fans rate hike bets, eyes on US jobs

Yields on US Treasuries and government debt in many other major economies spiked Thursday amid fears that the surging cost of energy caused by the Middle East crisis will force central banks to ramp up borrowing costs well into next year.

And while they eased back in early business Friday, angst continues to flow across trading floors, compounded by fresh worries of another flare-up in the US-Iran war.

Both main crude contracts edged up to extend the previous day's rally with Washington and Tehran deadlocked on ending the crisis and unable to reopen the Strait of Hormuz.

Adding to unease, Axios said the US military was sending more warships, jets and troops to the region amid speculation US President Donald Trump could resume the war.

It said the USS Theodore Roosevelt aircraft carrier and its strike group could arrive in the Middle East next month.

Constantly high fuel costs have pushed up inflation since the start of the war at the end of February, fanning rate hike bets and pushing bond yields to levels not seen since the 2000s.

"Bond markets are now pricing in four further 25-basis-point rate hikes by June 2027," said FOREX.com's Fawad Razaqzada.

"That marks a dramatic shift in expectations from before the US-Iran war at the start of the year, when markets were anticipating at least 100 basis points of rate cuts over the same period."

He pointed out that the Bloomberg Commodity Index had jumped more than 37 percent on-year and was set for one of its largest 12-month gains since the 2022 energy crisis.

"The scale of the advance points to a renewed wave of commodity-driven inflation, complicating the outlook for central banks as borrowing costs continue to rise," he warned.

A positive lead from Wall Street was unable to provide any support to Asian stock markets, with Hong Kong losing more than two percent and Tokyo, Singapore, Wellington, Manila and Jakarta also down. Shanghai is closed for a holiday.

Seoul, however, was supported by another jump in chipmakers SK hynix and Samsung, while Sydney and Taipei were up, too.

US non-farm payrolls figures later Friday are in focus as traders try to ascertain the Fed's next move after last month's rate hike.

A below-forecast read on the bank's preferred measure of inflation this week helped ease concerns for a second successive lift on October 28, but a strong jobs read could strengthen the case for such a move.

Optimism for a hold has been given a shot in the arm this week by some officials calling for a measured approach.

Vice Chair Philip Jefferson said policymakers should make a decision after "carefully examining trends in the data", adding that "my colleagues and I will need to come to our own judgment, which may take more time".

And another official, Michelle Bowman, said she did not "currently see an urgent need for further action".

The remarks came after New York Fed chief John Williams said "there is no need for urgency, and we have time to gather more information".

Still, Dallas president Lorie Logan warned: "I currently estimate the target range needs to rise an additional 50 basis points or more to appropriately balance the outlook and risks for our dual mandate goals."

- Key figures at around 0230 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 68,326.72 (break)

Hong Kong - Hang Seng Index: DOWN 2.6 percent at 23,982.79

Shanghai - Composite: Closed for a holiday

West Texas Intermediate: UP 0.1 percent at $92.92 per barrel

Brent North Sea Crude: UP 0.2 percent at $102.50 per barrel

Dollar/yen: DOWN at 157.92 yen from 158.06 yen on Thursday

Euro/dollar: DOWN at $1.1242 from $1.1245

Pound/dollar: UP at $1.3197 from $1.3196

Euro/pound: UP at 85.19 pence from 85.18 pence

New York - Dow: FLAT at 50,926.56 (close)

London - FTSE 100: DOWN 1.7 percent at 10,428.27 (close)

K.Yamaguchi--JT