Market Selloff Across Asia
Asian stock markets declined on Friday as investors grew increasingly worried about soaring oil prices and bond yields. Hong Kong's Hang Seng Index dropped more than two percent, while Tokyo, Singapore, Wellington, Manila, and Jakarta also fell. Shanghai was closed for a holiday. A positive lead from Wall Street failed to lift Asian markets. Seoul bucked the trend, supported by gains in chipmakers SK hynix and Samsung, and Sydney and Taipei also edged higher.[S1]
The slump occurred after yields on US government bonds and sovereign debt across numerous large economies jumped on Thursday. Investors worried that soaring energy prices tied to the Middle East conflict would compel central banks to keep raising interest rates through next year, which fueled the selloff. Even though yields retreated slightly early Friday, unease still spread through markets, worsened by renewed fears that the US-Iran conflict could escalate again.[S1]
Oil Prices and Geopolitical Tensions
Both major oil benchmarks rose slightly, building on the prior session's gains, as Washington and Tehran stayed at an impasse over halting the conflict and could not reopen the Strait of Hormuz. Heightening concerns, Axios reported that the US military was deploying additional warships, aircraft, and personnel to the area amid talk that President Donald Trump might restart the war. The USS Theodore Roosevelt carrier and its accompanying strike group may reach the Middle East next month, the report said.[S1]
Persistently elevated fuel prices have driven inflation higher since the war began in late February, boosting expectations for rate increases and lifting bond yields to levels last seen in the 2000s. Fawad Razaqzada of FOREX.com observed that bond markets now anticipate four more quarter-point rate hikes by June 2027, a sharp reversal from before the US-Iran war when markets expected at least 100 basis points of cuts over the same period. He also noted the Bloomberg Commodity Index had climbed over 37 percent year-on-year and was on track for one of its biggest 12-month advances since the 2022 energy crisis, cautioning that the magnitude of the rise signals a fresh wave of commodity-driven inflation.[S1]
Fed Policy and Jobs Data in Focus
US non-farm payrolls data due later Friday are drawing attention as traders seek clues about the Fed's next step following last month's rate increase. A weaker-than-expected reading on the central bank's preferred inflation gauge earlier this week reduced worries about another hike on October 28, but a robust jobs report could bolster the argument for such a move. Hopes for a pause have been boosted this week by some officials advocating a gradual approach.[S1]
Vice Chair Philip Jefferson stated that officials ought to decide after thoroughly reviewing data trends, adding that he and his colleagues must reach their own conclusions, which could require additional time. Another official, Michelle Bowman, indicated she currently saw no pressing need for more action. These comments followed New York Fed chief John Williams saying there is no urgency and time exists to collect more information. Nevertheless, Dallas president Lorie Logan cautioned that she presently estimates the target range must increase by another 50 basis points or more to properly balance the outlook and risks for the dual mandate goals.[S1]
