Asian shares fall as oil prices rise, inflation worries weigh on markets

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Asian shares mostly declined in early Tuesday trading as higher oil prices and renewed inflation concerns weighed on investor sentiment, offsetting optimism from strong corporate earnings.

Japan's Nikkei 225 fell 1.6% to 68,098.54, while South Korea's Kospi dropped 0.6% to 6,933.60 after rising earlier. Hong Kong's Hang Seng declined 0.6% to 25,289.88 and the Shanghai Composite slipped 0.5% to 3,963.53. Australia's S&P/ASX 200 was an exception, edging up 0.2% to 9,088.60.

Strong earnings offer some support

Analysts said robust earnings reports from Asian companies, following upbeat results in the US, are helping cushion concerns over the impact of the Iran war on global crude supplies and energy prices.

Japan remains particularly exposed to oil price movements as it imports almost all of its oil.

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

The analysts also pointed to strong earnings from Japanese companies during the April-June quarter and said the Bank of Japan could begin raising interest rates in the coming months.

Wall Street slips from record highs

US stocks moved further away from their recent records on Monday. The S&P 500 fell 0.5%, while the Dow Jones Industrial Average dropped 272 points, or 0.5%. The Nasdaq composite declined 0.3%.

The losses intensified as oil prices accelerated higher during the afternoon.

US benchmark crude rose 34 cents to $84.84 a barrel in early Asian trading on Tuesday. Brent crude, the international benchmark, gained 21 cents to $91.08 after climbing 2.7% on Monday.

Oil prices keep inflation worries alive

Brent prices have been highly volatile amid uncertainty over whether the US and Iran can reach an agreement allowing oil tankers to move freely through the Persian Gulf. Last month, Brent traded between $72 and $102 a barrel.

Higher oil prices have also pushed US Treasury yields higher, increasing pressure on borrowing costs and financial markets. The 10-year Treasury yield rose to 4.72% from 4.68% late Friday, up sharply from 3.97% before the Iran war.

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The rise has also pushed average long-term US mortgage rates close to their highest level in a year.

The S&P 500 ended at 7,745.06, down 40.70 points. The Dow fell 272.63 points to 53,459.78, while the Nasdaq slipped 84.25 points to 26,644.91.

In currency markets, the US dollar rose slightly to 159.43 Japanese yen, while the euro edged up to $1.1585.