Asian equity markets dip as oil rallies and bond yields rise

Asian equity markets mostly slipped on Monday as oil prices surged and bond yields continued to climb, adding pressure ahead of a busy week of economic data. Brent crude rose 2.7% to $107.16 a barrel, while U.S. crude gained 1.9% to $94.16, reflecting renewed concerns over the lack of a truce between the United States and Iran after President Trump rejected Tehran's proposal to reopen the Strait of Hormuz.

The rise in oil prices has pushed diesel to record highs, raising worries that inflation could become entrenched in pricing and wage decisions. Central banks have responded with a series of rate hikes, and the Reserve Bank of Australia is expected to tighten policy at its meeting on Tuesday.

Market pricing now suggests a 68% probability that the Federal Reserve will raise rates again in October, with about 90 basis points of tightening already factored out for late next year. Strong U.S. economic data has bolstered expectations for corporate earnings, supporting equity valuations despite higher yields.

"The global expansion appears to have entered a phase of broad-based strength rarely seen over the past two decades," said Bruce Kasman, chief economist at JPMorgan. He added that resilient growth and firm energy-price perceptions make higher rates unsurprising, and noted that policy rates are likely to stay elevated beyond the coming year.

In China, industrial profit growth slowed further in August as weak domestic demand offset gains in the technology sector. On Wall Street, S&P 500 futures slipped 0.3% and Nasdaq futures fell 0.7%; European futures showed modest gains.

U.S. Treasury yields rose, with the 30-year rate reaching 5.52%, its highest level since 2004, and the two-year yield up 55 basis points this month. Mark Cabana, a rate strategist at Bank of America, warned that bond repricing could continue until financial conditions become clearly restrictive.

Higher yields increase borrowing costs globally just as technology firms seek financing for AI expansion, while also raising the discount applied to earnings. The U.S. data calendar this week includes inflation, GDP, manufacturing and employment reports, with September payrolls expected to add 85,000 jobs and the unemployment rate to hold near 4.1%.

The dollar index rose to a two-month high of 101.39, while the euro fell to $1.1383, down 2.0% for the month. The yen edged higher to 157.75 per dollar after comments from Japan’s finance minister about concerns over yen weakness, and sterling hovered just above three-month lows at $1.3240, supported by hawkish remarks from the Bank of England governor.