Asian stocks mostly fell on Tuesday as traders recalibrated expectations for more aggressive Federal Reserve rate hikes, while oil prices recovered some ground after the U.S. signaled progress in talks with Iran. MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5%, and S&P 500 e-mini futures slipped 0.2%. Brent crude edged up 0.2% to $78.03 per barrel after settling more than 3% lower on Monday.
Fed rate hike bets surge
Traders are increasingly pricing in a more hawkish Fed under new Chair Kevin Warsh. Fed funds futures now imply a 54% probability of at least two 25-basis-point rate hikes before year-end, up sharply from 15.2% a week ago, according to CME Group's FedWatch tool. The U.S. dollar index held near its highest since last May at 101.04, while the 10-year Treasury yield dipped slightly to 4.501%.
Japan and Korea lead losses
Japan's Nikkei 225 fell 0.6%, paring some losses after data showed manufacturing growth accelerated in June with new orders surging at the fastest pace in over four years. South Korean shares swung between gains and losses and were last 2% lower, while Taiwan's stock market opened 0.9% higher, hitting a fresh record. "These are far from dull markets," said Chris Weston, head of research at Pepperstone Group in Melbourne. "The former generals of the market appear to have lost momentum, and investors are rotating into other areas that are more defensive, less AI-focused."
Oil rebounds, yen stabilizes
Oil prices recovered after U.S. Vice President JD Vance said the Strait of Hormuz was open and progress had been made in talks with Iran, easing supply concerns. In currency markets, the yen was flat at 161.55 per dollar, near 40-year lows, after Japanese Finance Minister Satsuki Katayama held an online meeting with U.S. Treasury Secretary Scott Bessent late Monday to discuss sharp currency swings. The British pound held steady at $1.3247 after Prime Minister Keir Starmer announced his resignation, paving the way for an orderly transition to frontrunner Andy Burnham.
Commodities and crypto slip
Gold edged down 0.2% to $4,180.38. Bitcoin slid 0.8% to $63,873.71, and ether fell 0.5% to $1,724.08. Wall Street ended lower overnight, with the S&P 500 down 0.4% and the Nasdaq Composite dropping 1.3%, dragged by declines in megacap tech stocks including Alphabet and SpaceX.