Asian stock markets traded cautiously on Tuesday as investors monitored rising tensions in the Middle East, higher oil prices and increasing bond yields ahead of key meetings of the US Federal Reserve and Bank of Japan.
Oil prices moved higher after fresh attacks and growing concerns over possible disruptions to global supplies. US crude rose 1.27% to $102.68 a barrel, while Brent crude gained 1.21% to $106.96.
Higher oil prices are raising concerns that inflation could remain under pressure, potentially influencing interest-rate decisions by central banks.
Investor sentiment was also affected by growing calls from some leading figures in the artificial intelligence industry to slow the pace of AI development. US President Donald Trump, however, downplayed concerns over the misuse of AI technology.
The MSCI index of Asia-Pacific shares outside Japan fell 0.12%, while South Korea’s market declined 0.25%. Japan’s Nikkei recovered from early losses to trade 0.19% higher.
Fed and BOJ meetings in focus
The US Federal Open Market Committee began its two-day meeting on Tuesday. Markets were pricing in a strong possibility of a 25-basis-point rate hike, which would be the Federal Reserve’s first increase since mid-2023.
Bond yields also remained elevated. The US 10-year Treasury yield briefly touched 5%, its highest level since 2023. Germany’s 10-year yield also climbed above 3.51%.
Meanwhile, the Bank of Japan is widely expected to raise its policy rate by 25 basis points to 1.25% on Friday. Markets will closely watch its guidance on further tightening and the yen.
Dollar and precious metals
The dollar index edged up 0.05% to 99.53, while the dollar gained 0.17% against the Japanese yen to 154.61.
Gold prices slipped 0.15% to $4,291.59 an ounce, while silver fell 0.31% to $63.03.