Asia Tech Rallies, Oil Slips as Saudi Supply Hopes Emerge

Asian equity markets edged higher on Monday as artificial intelligence demand continued to support semiconductor manufacturers, offsetting broader regional caution. According to The Star, trading volumes were constrained by Japan’s Silver Week holiday, which left the Nikkei index closed through Wednesday but saw related futures rise 0.5%. South Korea’s tech-heavy index gained 1.1%, while the MSCI Asia-Pacific ex-Japan index added 0.3%, reflecting a sector-specific rally rather than broad-based momentum.

Oil prices softened slightly as market participants weighed geopolitical risks against potential supply increases. Brent crude dipped 0.2% to $103.68 per barrel, and US crude fell 0.3% to $100.02. The decline was driven by reports that Saudi Arabia aims to restart flows through its East-West pipeline, which had been damaged in recent attacks. This potential restoration of supply partially offset the price pressure from Houthi attacks on Riyadh and escalating threats between Iran and the United States.

Bond yields tighten global liquidity

Fixed income markets remain under stress as US two-year yields hit 4.7604%, their highest level since mid-2024. This sharp rise follows a 36 basis point increase over the past two weeks, driven by hawkish guidance from the Federal Reserve. Market participants are now pricing in a 56% probability of another rate hike in October, with a year-end increase widely considered inevitable. This tightening cycle has increased borrowing costs globally, weighing on non-interest-bearing assets like gold, which eased 0.2% to $4,370 per ounce.

Fiscal concerns are further straining European debt markets, as the risk premium on French bonds spiked to its widest level since the eurozone debt crisis. German debt faces potential pressure following the poor election results for Chancellor Friedrich Merz’s party, the worst since 1949. These developments kept the euro flat at $1.1477 against the dollar, which remained steady at 157.00 yen. Investors are wary of potential Bank of Japan intervention in the currency market, given the thin trading liquidity during the Japanese holiday period.

Strategic reserves face rapid depletion

Commodity analysts warn that global oil inventories are depleting faster than previously estimated due to the disruption in Saudi Arabia’s East-West pipeline. Vivek Dhar, head of commodities at CBA, stated that the market now has only 5 to 10 weeks of buffer before global inventories deplete, a significant reduction from the 15 to 20 weeks estimated just two weeks ago. This accelerated drawdown increases the urgency for diplomatic solutions to restore flows through the Strait of Hormuz and keep the Bab el-Mandeb passage open, particularly as US President Donald Trump prepares to meet with Chinese President Xi Jinping later this week.

The Federal Reserve’s stance remains a dominant factor in global asset pricing, with analysts noting that tightening cycles are typically front-loaded. With nominal consumer spending up 6.3% year-on-year, well above the 5% level associated with above-target core inflation, the Fed has limited options to restrain demand. Consequently, banks are forecasting two more rate hikes, in October and December, while central banks in the EU, UK, Japan, Australia, and New Zealand are also expected to tighten policy by year end, further constraining liquidity across major economies.