Asia Stocks Edge Higher Despite Elevated Oil Prices and Treasury Yields

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By Nandinee Keluskar

Nandinee Keluskar is an independent financial journalist.

September 3, 2026 at 2:49 AM IST

Global Mood: Cautiously Risk-on

Drivers: US-Iran Escalation Fears, Global Bond Selloff, Japan Yields at 30-Year High

Asian equities traded mostly higher on Thursday despite elevated oil prices and US Treasury yields, with South Korea’s Kospi rising 0.86% and Japan’s Topix gaining 0.65%, while Australia’s ASX 200 edged up 0.12% and the Nikkei was little changed.

The resilience came after Wall Street recovered from earlier losses, with US stocks gaining even as oil remained above $91 a barrel and the 10-year Treasury yield stayed near 4.8%. However, the sharp rise in Treasury yields remains a key risk for Asian equities, as higher energy prices are reviving inflation concerns and increasing expectations of tighter monetary policy. The 2-year Treasury yield at 4.41% also signals that markets are increasingly pricing a more hawkish Fed outlook, keeping pressure on rate-sensitive sectors despite the broader stabilisation in equities.

THE BIG STORY

The US-Iran conflict flared into its worst exchange since July as Washington struck Iran's southern coast targeting air defences, radar, maritime assets and mine-laying capabilities, while Iran retaliated against US bases in Jordan, Bahrain, Kuwait and Iraq and struck two tankers with mines in Hormuz. Iran's health ministry put the civilian toll from US strikes at 18 dead and 108 wounded, including casualties at a reported wedding in Sirik, an incident the US military denied targeting.

Trump called it a "very heavy attack" and said the US was "prepared to do another one any time," while Iran warned it would drive US forces from their West Asia bases entirely and vowed heavier, more widespread responses. Qatar blamed Iran for the attacks and their repercussions, a notable diplomatic signal from the host of the largest US air base in the Gulf. Iran blacklisted 11 more ships, bringing its total to 56, even as Washington claimed more than 17 million barrels exited Hormuz on Monday — a disputed figure given continuing mine strikes and near-standstill vessel crossings.

The renewed escalation sent shockwaves through global bond markets already under severe pressure. Japan's 10-year yield topped 3% for the first time since 1996, German Bunds hit their highest since 2011, and UK gilts their highest since 2008, as rising energy prices stoked rate-hike bets and debt sustainability fears mounted simultaneously. Brent hit a one-month high, European gas prices reached their highest since early 2023, and traders now price a roughly 70% chance of a Fed hike in September following Warsh's hawkish Jackson Hole speech.

Bond vigilante fears are resurfacing across G7 markets as governments face the compounding pressures of war spending, ageing populations, AI-driven corporate bond issuance competing for capital, and an energy crisis with no near-term resolution. Friday's US jobs report is the next key data point, though analysts warn that with inflation the dominant concern post-Jackson Hole, the bond selloff's momentum may persist regardless of the payrolls print.

Data Spotlight

US factory orders rose 0.9% in July, beating expectations of 0.6% and rebounding from June's 0.2% decline, led by a 12.7% surge in civilian aircraft orders and solid gains in primary metals, machinery and defence aircraft. Excluding transportation, orders rose 0.6%, pointing to broad-based underlying demand.

US private payrolls rose just 38,000 in August, the weakest gain since January and below forecasts of 47,000, as manufacturing shed 17,000 jobs and professional services lost 16,000. Education, healthcare, leisure and hospitality showed solid hiring, while pay growth remained steady amid what ADP described as increasingly complex labour market dynamics driven by demographics, inflation and AI.

The 30-year fixed mortgage rate edged up to 6.79% in the week ending August 28th, remaining near one-year highs as renewed West Asia tensions and hawkish Warsh comments reinforced September rate hike expectations. Purchase applications rose 2.2% while refinancing fell 1.1%, with total applications up 0.8%.

The Bank of Canada held its overnight rate at 2.25%, flagging stronger upside inflation risks from the continuing Iran conflict and US tariffs on Canadian exports. Underlying inflation has so far held at target despite the energy shock, though the BoC declined to signal any clear policy direction for the remainder of the year.

Takeaway: Factory orders beating expectations contrast with the weakest private payroll growth since January, reinforcing the uneven picture of a US economy where industrial demand holds up but labour market momentum continues to soften. Hawkish central bank signals from both the Fed and Bank of Canada, alongside renewed West Asia tensions, keep upside inflation risks firmly in focus.

WHAT HAPPENED OVERNIGHT

US stocks slide as oil spike, bond selloff, and hawkish Fed create perfect risk-off storm to start September
The Dow fell 0.79%, S&P 500 lost 0.71%, and Nasdaq dropped 1.03%, as September began with its historically worst-month reputation intact amid escalating West Asia hostilities.
Fresh US airstrikes on Iranian targets around Hormuz drove crude higher, while Bessent flagged imminent new bank sanctions to "economically asphyxiate" Tehran, with Iran warning it would block Gulf oil exports.
Global sovereign debt yields rose to multi-year highs as markets priced accelerating central bank tightening across major economies.
The Philadelphia Semiconductor Index dipped 2.1% with every constituent closing lower.
JOLTS showed fewer-than-expected July job openings, while PMI data signalled slowing factory activity and falling residential construction spending, pointing to tariff and geopolitical headwinds.
US Treasury yields surge past 4.8% to highest since October 2023 as multiple pressures converge on the long end
Renewed US-Iran strikes prolonged the halt in GCC energy supply, with the resulting oil and product price spike adding inflationary risks as multiple FOMC members, including Warsh, flagged a September rate hike.
AI companies raising an estimated $1.5 trillion in debt this year limited primary dealer allocation for government securities, adding structural upward pressure on yields.
Reports of potential Japanese yen intervention raised concerns over Treasury selling by the largest foreign holder, extending the yield surge.
Treasury Secretary Bessent's announcement of increased long-term security buybacks provided only limited relief, failing to contain the broad-based selloff in longer-dated bonds.
Dollar holds near two-week high despite soft ADP data as geopolitical and rate hike factors dominate
The dollar index edged slightly lower to 99.5 after August ADP private payrolls came in at just 38,000, the weakest since January and below the 47,000 estimate, signalling broader labour market cooling.
Despite the soft data, the dollar remained supported by safe-haven demand amid escalating US-Iran strikes and the economic uncertainty from the ongoing energy shock.
September Fed hike odds stand at 66%, up sharply from 40% a week ago, with diverging global monetary policy paths adding to the dollar's relative appeal.
Oil settles 1% higher in volatile session as most significant US-Iran strikes in weeks threaten Hormuz flows
Brent settled at $95.63/bbl, up 1%, and WTI at $91.01, up 0.9%, swinging in a $3 range as the seventh-month-old war saw its biggest exchange of fire since July.
US forces struck Iran's southern coast targeting radar and mine-laying capabilities, while Iran retaliated against US bases across the region, with the IRGC warning the attacks would further restrict Hormuz traffic.
Only four commodity vessels transited Hormuz on Wednesday, below the 10-day average of 13, with two oil tankers disabled after hitting sea mines while attempting to transit the strait.
Iran expanded its list of non-compliant ships subject to fines, confiscation, or detention if they attempt Hormuz transit, while US Energy Secretary Wright claimed 17 million barrels transited on Monday, the highest since the war began.
US crude inventories fell 4.5 million barrels last week, far exceeding the 1.1 million barrel draw expected by analysts, tightening the near-term supply outlook.
Iraq boosted oil exports in August, with September loadings set to rise further as Iranian approval for its tankers encourages buyers, partially offsetting Hormuz disruption.
OPEC+ is likely to keep output policy unchanged for October at Sunday's meeting, with the group focused on 2027 quota negotiations after completing the current layer of production cut unwinds.
Russia carried out a heavy missile and drone attack on energy infrastructure in Ukraine's Odesa region overnight, adding further pressure on global supply.

Day’s Ledger*

Economic Data

China August Caixin Services PMI
India August S&P Global Services PMI
Russia August S&P Global Services PMI
HCOB Germany August Services PMI
HCOB Eurozone August Services PMI
HCOB Eurozone August Composite PMI
UK August S&P Global Composite PMI
UK August S&P Global Services PMI
US Initial Jobless Claims
US July Trade Balance
Canada July Trade Balance
US August S&P Global Services PMI
US August S&P Global Composite PMI
BoC Interest Rate Decision
US August ISM Non-Manufacturing PMI

Corporate Actions

Canara Bank to consider fund raising

Policy

Fed Waller Speaks

Tickers to Watch

ICICI BANK acquired an additional 2% stake in ICICI Prudential Life for about ₹14.7 billion (29 million shares, July 22–Sept 2, 2026); holding now about 52.8%.
POWER GRID CORPORATION OF INDIA received LoI worth ₹32.44 billion from Rajasthan REZ for an inter-state transmission system.
MEESHO SoftBank likely to sell 70 million shares (1.5% stake) via block deal worth ₹14.35 billion; floor price ₹205, up to 3.12% discount to market.
HUDCO signed MoU with Bihar government for ₹250 billion financial assistance over five years for industrial infrastructure, including land acquisition.
HEXAWARE TECHNOLOGIES Srikrishna Ramakarthikeyan to step down as CEO effective October 28, 2026; Vivek Jetley named CEO from the same date; Ramakarthikeyan to continue as senior advisor.
PAGE INDUSTRIES received Dubai court notice over Yellow Flower Trading LLC's claim on UAE distribution dispute, worth AED 113.55 million plus 9% annual interest from October 10, 2025; company to contest.
ASTER DM QUALITY CARE TPG affiliate Centella Mauritius sold 4.61 million shares (0.53% stake) for ₹3.5 billion; Union (Mauritius) Holdings bought at ₹760/share on NSE.
PINE LABS Alpha Wave Ventures sold 35.5 million shares (3.1% stake) for ₹5.5 billion at ₹155.1/share on NSE; buyers included ICICI Prudential Life, Societe Generale, Goldman Sachs Investments Mauritius, Viridian Asia Opportunities Master Fund.
FERTILIZERS AND CHEMICALS TRAVANCORE charged ₹4.382 billion penal interest on Government of India loan effective April 1, 2018; ₹3.8951 billion for period up to March 31, 2026, and ₹486.9 million for 2026-27.

Must Read

(*Compiled from various media sources)

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