Asian Markets Plunge as Oil Prices Soar and Inflation Concerns Rise
Asian equity and bond markets plummeted on Friday as soaring oil prices and inflationary pressures took their toll. The Nikkei Index dropped nearly 3%, while South Korea's KOSPI Index fell by 2.7%. Japanese and Australian government bonds saw yields surge to multi-year highs, with Australia's three-year bond yield hitting 5.05%.
The sharp decline in markets was triggered by the U.S.-Iran conflict, which has been ongoing for seven months and has pushed up oil prices due to concerns over supply disruptions in the Strait of Hormuz. Brent crude briefly climbed above $110 per barrel, its highest level since May 19 this year.
The U.S. Producer Price Index (PPI) data also exceeded expectations, rising by 0.4% month-on-month and 5.4% year-on-year. This further reinforced market expectations of a Federal Reserve rate hike, with the interest rate swap market pricing in a 70% probability of a September increase.
Market sentiment remains cautious ahead of Friday's U.S. Consumer Price Index (CPI) data release, which could determine the trajectory of current turmoil and alleviate pressure on the Federal Reserve to raise rates.