GLOBAL MARKETS: Stocks skid in Asia, bonds buckle as oil climbs

SYDNEY — Asian markets fell sharply on Monday as escalating tensions in the Middle East pushed oil prices and bond yields higher, while investors braced for a critical week of corporate earnings led by AI giant Nvidia.

Fresh drone attacks in the Gulf heightened fears of a broader regional conflict. A drone strike caused a fire at a nuclear power plant in the United Arab Emirates, while Saudi Arabia said it intercepted three drones. U.S. President Donald Trump warned that Iran must move “fast” to reach a deal.

The situation has intensified concerns over global energy supplies as the Strait of Hormuz remains largely closed, disrupting one of the world’s most important oil shipping routes. The waterway typically handles about 20% of global oil trade.

Analysts at Capital Economics warned that the prolonged closure could rapidly drain global oil inventories and potentially send Brent crude prices to as high as $130 to $140 per barrel. They added that if oil prices stay elevated through next year, inflation could surge globally and increase the risk of a worldwide recession.

Brent crude rose 1.9% to $111.34 per barrel, while U.S. crude climbed 2.3% to $107.84 per barrel.

The growing energy crisis also rattled global bond markets. Yields on U.S. 10-year Treasury notes reached their highest level in 15 months, while 30-year bond yields also surged as investors worried that central banks may be forced to keep interest rates higher for longer to combat inflation.

Japanese government bond yields climbed to levels not seen since 1996 after Tokyo proposed issuing additional debt to support economic measures linked to the conflict’s impact.

Market expectations for a U.S. Federal Reserve rate hike this year have also increased, with investors closely watching the release of minutes from the Fed’s latest policy meeting on Wednesday.

Asian stock markets mostly traded lower. Japan’s Nikkei index fell 1.1%, while South Korean shares slipped 0.1%. MSCI’s broad Asia-Pacific index outside Japan lost 0.9%. Chinese blue-chip stocks were steady despite weaker-than-expected economic data, including soft retail sales and industrial output figures.

Wall Street futures also declined ahead of a busy earnings week. Investors are particularly focused on upcoming results from Nvidia, whose shares have surged amid continued demand for artificial intelligence technology and semiconductor infrastructure.

Analysts said the recent rally in U.S. stocks has been driven by only a small group of companies, particularly those tied to AI, raising concerns about the sustainability of the market’s gains.

Retail giants including Walmart are also scheduled to report earnings this week, which could provide insight into consumer spending trends as higher fuel prices continue to pressure households.

In currency markets, the U.S. dollar remained strong as investors sought safer assets. The euro traded at $1.1616, while the British pound weakened further amid political uncertainty and rising pressure on British bond markets.

Gold prices slipped 0.2% to $4,527 per ounce despite ongoing geopolitical tensions.

-Reporting by Wayne Cole; Editing by Jacqueline Wong and Thomas Derpinghaus/Reuters