Asian stocks traded mostly lower on Tuesday as renewed concerns over the Middle East conflict kept oil prices elevated, raising the prospect of persistent inflation and tighter monetary policy.
Japan's Nikkei 225 fell 0.27%, while Australia's S&P/ASX 200 declined 0.33%. South Korea's KOSPI bucked the broader trend, gaining 0.51%.
Oil remained in focus after crude prices touched six-week highs in the previous session. Brent was little changed after briefly moving above $98 a barrel, while West Texas Intermediate gained 1% to $92.44 a barrel.
The latest moves in crude came as Iran said an agreement with Oman to oversee shipping through the Strait of Hormuz was close, raising uncertainty over how Washington might respond following its strikes on Iranian vessels over the weekend. Tehran also warned of potential risks to ships operating near Oman's coastline.
The escalation has kept energy markets on edge, with the conflict continuing to disrupt expectations around crude supplies and shipping through the strategically important waterway.
Higher oil prices have also added to concerns about inflation. Crude's sharp rise over the past month has pushed investors to reassess the potential impact on consumer prices and the path of interest rates, while Treasury yields have moved higher.
The 10-year US Treasury yield reached its highest level since November 2023 last week, while the 2-year yield climbed to its strongest level since January 2025.
US equity futures were mixed early Tuesday after Wall Street was closed for the Labor Day holiday on Monday. Dow futures fell 308 points, or 0.6%, while S&P 500 futures slipped 0.2%. Nasdaq-100 futures rose 0.1%.
Investors are therefore entering the shortened US trading week with attention split between developments in the Middle East, the trajectory of oil prices and their potential implications for inflation and monetary policy.
With inputs from Bloomberg.
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