Sydney: Asian markets weakened on Wednesday as rising oil prices, high bond yields and growing concerns over tensions in the Middle East made investors more cautious, a day after US stocks reached fresh records.
Brent crude rose above $100 a barrel as markets watched developments involving Saudi Arabia and Iran backed Houthi forces in Yemen. The rise in oil prices increased concerns that prolonged regional tensions could affect energy supplies and add to inflation pressures around the world.
Brent crude was trading at about $101.58 a barrel, while US crude was around $90.22 a barrel in Asian trading. The prices reflected continued uncertainty over energy supplies and the possible impact of further disruption in the Middle East.
Asian markets moved lower after a strong session on Wall Street. Japan's Nikkei 225 fell by around 0.9 percent, while South Korea's Kospi dropped about 2 percent. Hong Kong's Hang Seng Index was down around 0.5 percent.
Mainland Chinese markets remained closed on Wednesday for the National Day holiday and are scheduled to resume trading on Thursday.
The weaker Asian session followed a strong day in the United States. The S&P 500 rose 0.6 percent on Tuesday to 7,818.93, reaching another record. The Dow Jones Industrial Average gained 0.5 percent to 51,521.28, while the Nasdaq rose 0.4 percent to 27,599.79 and also reached a record.
Technology and artificial intelligence companies continued to support US markets, with investors expecting strong corporate earnings. However, rising oil prices and high borrowing costs are adding to concerns about the sustainability of the market rally.
The US 10 year Treasury yield was around 5.3 percent in Asian trading. Higher long term borrowing costs can increase pressure on companies and households and can influence investment decisions.
Investors are also awaiting the minutes of the US Federal Reserve's September 15 and 16 meeting for clues about the central bank's approach to interest rates and inflation.
Expectations for another US rate increase in October have weakened in recent days. However, investors remain concerned that higher energy prices could make it harder for central banks to bring inflation under control.
The oil market is also closely watching the security situation around Saudi Arabia and Yemen. Houthi military spokesman Brig. Gen. Yahya Saree claimed that the group launched missile and drone attacks against targets in Saudi Arabia, including King Khalid International Airport in Riyadh.
Saudi authorities have reported intercepting a missile near Riyadh. Flights to and from the airport were also briefly disrupted, according to flight tracking service Flightradar24. The full impact of the reported attacks remains unclear.
The wider conflict is important for global markets because the Red Sea and the Bab el Mandeb Strait are major routes for international shipping. Any serious disruption could increase transport costs and put additional pressure on energy markets.
Governments are already taking steps to respond to the energy situation. The Group of Seven has agreed to coordinate measures to support energy supplies, while the International Energy Agency has released a large part of the emergency oil volumes previously announced by its members.
About 325 million barrels of the previously announced 400 million barrel emergency release had already been released, according to the IEA. Further releases of oil and diesel reserves are also being discussed.
The exact size and timing of any additional release remain unclear.
The pressure also spread to European markets on Wednesday, with major indexes in France, Britain and Germany falling in early trading. Investors were watching the impact of higher energy costs as well as concerns about borrowing costs and government finances.
India also came under pressure as investors assessed higher interest rates and rising energy costs. The Reserve Bank of India raised its benchmark interest rate by 25 basis points to 5.5 percent, its first increase in almost four years.
Despite the declines in Asia and Europe, the global market picture remains mixed rather than uniformly negative. US shares remain at record levels, supported by expectations for corporate earnings and continued interest in technology and artificial intelligence companies.
The main uncertainty for investors is whether those gains can continue if oil prices remain high and borrowing costs stay elevated.
For now, markets are balancing two opposing forces. Strong corporate earnings and technology optimism are supporting equities, while geopolitical tensions, expensive energy and high bond yields are encouraging investors to become more cautious.