Asian Markets Trade Cautiously Amid Rate Expectations and Geopolitical Tensions

Asian markets traded cautiously on Tuesday as investors weighed various factors that could impact their performance. The Federal Reserve's interest-rate expectations, President Donald Trump's comments on Iran, and a note from Societe Generale on artificial intelligence-related earnings all played a role in shaping market sentiment.

The US dollar was up 0.3% against the yen at 157.62 after coordinated intervention by US and Japanese authorities last week aimed at supporting the currency. The yen remains about 4% stronger against the dollar than it was a week earlier, before that intervention. Market pricing continues to point to a further rise in US interest rates: fed funds futures currently imply a 65% probability of a 25-basis-point increase at the Federal Reserve's next two-day meeting, concluding September 16.

The moves followed data showing US manufacturing activity reached its highest level in more than four years in July. Almost two-thirds of S&P 500 companies have reported second-quarter results, and 84% have beaten earnings estimates, according to LSEG data. Analysts at Societe Generale characterised the AI trade as entering a more mature phase, noting that investor focus is increasingly shifting toward the sustainability of margins beyond 2026.

Oil prices posted limited gains in Asian trading, with Brent crude up 1.6% at $85.12 a barrel after attacks on shipping in the Strait of Hormuz. The combination of weaker demand at the Japanese government bond auction and a yen still trading well above the levels that triggered last week's intervention leaves cross-border financing and hedging costs exposed to further movement.

Cryptocurrency markets remained relatively stable, with bitcoin flat at $63,776.56 and ether down 0.3% at $1,862.40.