GLOBAL MARKETS: Stocks slip in Asia, oil up on peace doubts

SYDNEY – Most Asian share markets edged lower on Monday as renewed uncertainty over the Middle East peace process pushed oil prices and bond yields higher, increasing expectations that U.S. interest rates may remain elevated for longer.

Sterling weakened amid reports that UK Prime Minister Keir Starmer was considering his political future, following the decisive parliamentary victory of rival Andy Burnham. The result triggered renewed pressure within the governing Labour Party, with several ministers reportedly calling for Starmer to step down.

U.S. President Donald Trump said in a social media post that Starmer was set to resign, while also warning of possible new strikes on Iran. His remarks came as Vice President JD Vance held talks with Iranian officials in the first discussions under a proposed interim peace arrangement.

However, the negotiations were overshadowed by Tehran’s announcement that it had again closed the Strait of Hormuz. Tracking data indicated reduced maritime traffic through the critical oil shipping route, with 32 vessels passing on Friday and 26 on Saturday.

Iran-related tensions helped push Brent crude futures up 1.1% to $81.43 a barrel, still well below May’s peak of $126.41. U.S. West Texas Intermediate (WTI) crude rose 2.7% to $78.70 a barrel, remaining above pre-conflict levels near $67.

In equity markets, S&P 500 futures fell 0.5%, while Nasdaq futures declined 0.7%. In Europe, EUROSTOXX 50 futures slipped 0.5%, German DAX futures eased 0.3%, and FTSE futures dipped 0.1%.

In Asia, Japan’s Nikkei index rose 0.7%, extending gains after reaching record highs last week. South Korea’s benchmark index fell 0.9% following a sharp rally driven by semiconductor stocks. Broader MSCI Asia-Pacific shares outside Japan slipped 0.4%.

Treasury markets remained under pressure after a more hawkish tone from the Federal Reserve last week, with investors increasingly pricing in a 75% chance of a rate hike as early as September. Futures markets now imply around 38 basis points of tightening by year-end.

The yield on two-year U.S. Treasury notes rose to 4.2276%, the highest level since early 2025.

“Our baseline call is for patience and a first hike in the second half of 2027, but the margin for error and tolerance for further inflation is limited, with genuine risks of earlier hikes,” said Fabio Bassi, head of cross-asset strategy at JPMorgan.

“We remain constructive on risk assets as improving labor markets keep rates higher for longer, supporting a narrow leadership in quality growth, large caps, and technology,” he added, noting upside potential for the S&P 500 toward 8,000.

Attention now turns to the Federal Reserve’s preferred core inflation measure, due Thursday, which is expected to rise slightly to 3.4% in May, reinforcing concerns about tighter policy. Several Fed officials, including Governor Christopher Waller and New York Fed President John Williams, are also scheduled to speak.

In currency markets, the U.S. dollar held firm at 161.44 yen, supported by expectations of prolonged higher U.S. rates and limited only by the risk of Japanese intervention near recent highs.

The euro slipped to $1.1462 after briefly hitting a three-month low, while sterling fell 0.2% to $1.3210 amid ongoing political uncertainty in the United Kingdom.

“Amid uncertainty around a potential challenge to the UK prime minister and what it could mean for the fiscal outlook, gilts are likely to remain under selling pressure to start the week,” said Skye Masters, head of market research at NAB.

In commodities, higher bond yields weighed on gold, which fell 0.1% to $4,154 an ounce.

-Reporting by Wayne Cole; Editing by Shri Navaratnam/Reuters