Asian Stocks Fall as Hawkish Fed Outlook, Middle East Tensions Weigh on Sentiment

Asian stocks broadly declined on Monday, pressured by renewed expectations for a U.S. interest rate hike following hawkish commentary from a Federal Reserve official and rising oil prices amid fresh geopolitical tensions in the Middle East. The risk-off sentiment followed a lower close on Wall Street Friday and weaker U.S. stock futures during Asian trading hours.

Hawkish Fed Comments Rattle Investors

Investor sentiment soured after Federal Reserve Chair Kevin Warsh stated at the Jackson Hole symposium that the central bank would have "more work to do" if policymakers were not confident that inflation was returning to the 2% target. Following his remarks, market pricing for a September rate increase jumped to a 60% probability, up from approximately 35% before the speech, according to data cited by Investing.com.

Prospects of higher-for-longer U.S. interest rates tend to diminish the appeal of riskier assets, including many Asian equities, by increasing borrowing costs and drawing capital toward U.S. markets.

Geopolitical Risks and Economic Data

Adding to market concerns, oil prices surged after U.S. forces struck Iranian military assets and Iran reportedly launched retaliatory attacks. Brent crude futures climbed back above $90 a barrel, fueling worries about inflationary pressures that could complicate central bank policy globally.

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Meanwhile, regional economic data was mixed. China's official manufacturing purchasing managers' index (PMI) for August rose to 49.8, an improvement from July but still in contraction territory (a reading below 50). In contrast, Japan reported better-than-expected industrial output and retail sales data, suggesting some resilience in its domestic economy.

Regional Market Performance

Major indices across the region registered losses, reflecting the cautious mood.

• South Korea's KOSPI was a notable decliner, falling 1.5%.
• Japan's Nikkei 225 dropped 1.1%, while the yen briefly weakened past the 160 level against the U.S. dollar.
• Hong Kong's Hang Seng index slipped 0.8%, while mainland China's blue-chip CSI 300 lost 0.8%.

A few markets bucked the negative trend, with Australia's S&P/ASX 200 edging up 0.1% and Singapore's Straits Times Index gaining 0.4%.