Asian Shares Decline Amid Rising Oil Prices

Asian Shares Decline Amid Rising Oil Prices

Asian share markets experienced declines on Monday, May 18, following fresh drone attacks in the Gulf region that elevated oil prices and bond yields. This geopolitical tension, coupled with anticipation for Nvidia's earnings report, influenced market sentiment across the continent.

Drone strikes in the United Arab Emirates and Saudi Arabia contributed to a 1.2% increase in Brent crude to $110.63 a barrel and a 1.0% rise in U.S. crude to $106.42 a barrel. The ongoing closure of the Strait of Hormuz, a critical shipping lane, is projected to deplete global oil inventories rapidly, potentially pushing Brent crude to $130-$140 per barrel by late June. This scenario raises concerns about inflation, with analysts from Capital Economics warning of potential inflation near 10% in the UK and Eurozone, leading to a global recession if oil prices remain high.

The prospect of sustained high energy costs fueled inflation concerns, impacting global bond markets. U.S. 10-year note yields increased to 4.584%, a 23 basis point surge last week, while 30-year bonds reached 5.109%, up 18 basis points. Investors are now considering a 50-50 chance of a Federal Reserve rate hike this year. Japan's Nikkei eased 0.4%, South Korean stocks fell 2.1%, and MSCI's broadest index of Asia-Pacific shares outside Japan lost 0.6%.