Asia Shares Bounce, Oil Edges Higher as US-Iran Tensions Simmer

Asian shares rebounded on Monday, led by a 2% jump in Japan's Nikkei and a 3% surge in South Korean markets, after a robust US jobs report boosted confidence in global growth. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.9%. The gains came despite growing expectations of interest rate hikes by major central banks.

Oil prices crept higher as the US and Iran exchanged attacks on ships in the Gulf. Tehran announced plans to declare a restricted zone near the Strait of Hormuz, raising supply concerns. Brent crude added 0.2% to $96.45 a barrel, after climbing nearly 10% last week, while US crude rose 0.4% to $91.85.

The inflationary pressure from higher oil prices puts a spotlight on the upcoming US consumer price index (CPI) report due Friday. Median forecasts expect a 0.2% rise in core CPI, though a higher reading could push Treasury yields closer to the 5% psychological barrier. Ten-year yields are already near their highest since late 2023 at 4.7840%.

Central banks are in focus. The European Central Bank is widely expected to raise rates to 2.75% on Thursday, with markets pricing a 75% chance of another hike by December. Futures imply a 58% probability of a US Federal Reserve rate hike in September and 70% for October, following last week's strong payrolls data.

In Asia, the Bank of Japan is seen as likely to raise rates by a quarter point at its September 18 meeting, with a 60% chance of another move by December. JPMorgan's global head of economics, Bruce Kasman, noted that central banks are now on the move, forecasting two more hikes from the ECB and BoJ before year-end, and sees a strong case for the Fed to act earlier than its baseline December projection.

Currency markets saw the dollar index hold at 99.135, near recent lows, as concerns over US debt and policy uncertainties weigh on the currency. The euro traded at $1.1614, close to its August high. Gold remained steady at $4,426 an ounce, supported by safe-haven demand.