Asian markets lost some of Monday’s relief as investors found a new set of risks to trade.
A temporary US sanctions waiver linked to Iran helped oil stabilise after a sharp fall, but it did not remove the bigger concern now driving cross-asset moves: a Federal Reserve that may be preparing to tighten again.
Equities slipped across much of Asia, the dollar held near one-year highs and the yen stayed close to levels that keep Tokyo on alert.
The message from markets was a clear step back from the idea that geopolitics alone had been the main threat to risk appetite.
Fed repricing unsettles Asian risk
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.5%, while S&P 500 futures edged lower after a weaker Wall Street session.
The Nasdaq had dropped 1.3% overnight as megacap technology names came under pressure, suggesting the AI-led trade is facing more scrutiny after a powerful run.
The rotation was visible across the region. Japan’s Nikkei fell 0.6%, even after a private survey showed factory activity remained strong in June.
South Korea’s Kospi swung between gains and losses before trading about 2% lower, while Taiwan’s market opened higher and touched a fresh record.
Strategists said leadership was becoming less narrow, with investors moving away from the former market leaders and looking for steadier cash-flow names.
Oil bounce keeps inflation in view
Brent crude rose 0.2% to about $78 a barrel, recovering some ground after settling more than 3% lower in the previous session.
Supply fears eased after Washington signalled progress in talks with Tehran and officials said the Strait of Hormuz remained open.
Still, the sanctions waiver complicates the picture. More Iranian supply could calm energy markets, but a rebound in crude shows traders are not ready to remove the Middle East risk premium entirely.
That matters for central banks because oil is again feeding into inflation expectations.
Japan’s manufacturing PMI rose to 54.9 in June, helped by the fastest growth in new orders in more than four years.
The strength was encouraging, but rising fuel and raw material costs also showed why investors are watching energy prices closely.
Dollar strength tests policymakers
The dollar index traded near 101.04, close to its highest level since May last year, as traders priced a much more hawkish Fed path.
CME FedWatch showed markets assigning a 54% chance of at least two quarter-point hikes by year-end, compared with about 15% a week earlier.
The yen was little changed near 161.55 per dollar, close to four-decade lows.
Japan’s finance minister held talks with US Treasury Secretary Scott Bessent, underscoring official concern over sharp currency moves.
Sterling was steady near $1.3247 after Prime Minister Keir Starmer said he would resign, opening the way for an orderly leadership transition.
Gold slipped 0.2%, while bitcoin and ether also traded lower as the stronger dollar kept pressure on alternative assets.
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