Asia shares decline as worries about rising oil prices outweigh boost from strong earnings

Key points

• All told, the S&P 500 fell 40.70 points to 7,745.06.
• In currency trading, the U.S. dollar rose to 159.43 Japanese yen from 159.37 yen.
• Australia's S&P/ASX 200 edged up 0.2% to 9,088.60.
• The price for a barrel of Brent crude, the international standard, rose 21 cents in Tuesday trading to $91.08 a…

As rising oil prices and worries concerning inflation worked as a dampener on some markets, countering the optimism that had come from robust corporate earnings reports, TOKYO: Asian shares declined in early Tuesday trading.

Japan’s benchmark Nikkei 225 dipped 1.6% to 68,098.54. Australia’s S&P/ASX 200 edged up 0.2% to 9,088.60. South Korea’s Kospi reversed course after surging earlier to drop 0.6% to 6,933.60. While the Shanghai Composite shed 0.5% to 3,963.53, hong Kong’s Hang Seng lost 0.6% to 25,289.88.

After those from the U.S., are helping counter worries about what the war in Iran will do to the global flow of crude and its impact on energy costs, analysts said robust earnings reports in Asia. Japan, for one, imports almost all its oil.

“First, the beneficiary base from AI investment has broadened. Demand spread across a broad set of industries, including semiconductor production equipment, power equipment, machinery, electronic components, and materials. AI demand effectively helped rediscover globally competitive businesses across these sectors,” Masashi Akutsu and Tetsuhiro Tokuyama remarked in a recent report for BofA Securities.

What happened

They noted the recent robust earnings reports out of Japanese companies for the April-June quarter, adding that, just as with the U.S. Federal Reserve, the Bank of Japan will likely start moving to raise interest rates in the next few months.

On Wall Street, stocks edged further away from their record heights on Monday. The S&P 500 fell 0.5% but remains near its all-time high set Thursday. The Dow Jones Industrial Average dropped 272 points, or 0.5%, and the Nasdaq composite slipped 0.3%.

Wall Street’s losses solidified in the afternoon when oil prices accelerated upward. Benchmark U.S. crude added 34 cents to $84.84 a barrel in Asian trading early Tuesday.

The price for a barrel of Brent crude, the international standard, rose 21 cents in Tuesday trading to $91.08 a barrel. It gained 2.7% to $90.87 on Monday.

The details

Last month alone, the Brent zigzagged between $72 and $102 as hopes rose and fell that the United States and Iran could reach a deal that would allow oil tankers to freely exit the Persian Gulf again.

The rally in oil prices sent Treasury yields in the bond market higher. It in turn raised the pressure on the economy and costs for all kinds of investments.

The yield on the 10-year Treasury climbed to 4.72% from 4.68% late Friday. It has shot up from just 3.97% before the war with Iran, largely because higher oil costs are worsening inflation and upping the probability that the U.S. Federal Reserve will have to hike interest rates.

Higher rates could keep a lid on inflation, but they do so by intentionally slowing the economy. Though reports last week stated that inflation in July was not as bad as earlier in the summer, the average long-term U.S. mortgage rate has already jumped near its highest level in a year because of the rise in the 10-year Treasury yield.

Why it matters

All told, the S&P 500 fell 40.70 points to 7,745.06. The Dow Jones Industrial Average dropped 272.63 to 53,459.78, and the Nasdaq composite slipped 84.25 to 26,644.91.

In currency trading, the U.S. dollar rose to 159.43 Japanese yen from 159.37 yen. The euro cost $1.1585, inching up from $1.1581.