The US-Iran conflict intensifies, Brent oil rises to $102, US stock index futures show mixed performance, US Treasury yields remain high.

Rising oil prices surpassing the $100 mark and renewed inflation concerns are putting multiple pressures on Asia-Pacific financial markets.

Brent crude oil briefly touched $101.94/barrel in early trading on Thursday after Iranian officials claimed to have sunk 10 ships near the Strait of Hormuz, with the US stating it subsequently sank 5 Iranian tankers. Oil prices later retreated, dropping 0.7% for the day but remained above $100 per barrel. As a result, the MSCI Asia Pacific Index fell 0.6%, Australian equities led the decline, bitcoin dropped to $78,299, down 0.8% intraday.

According to China Central Television, on September 9, local time, US President Trump stated that the US might strike Iran's “Khao Shan” nuclear facility and urged Tehran to exercise caution. Trump had threatened several times in July to attack Iran’s “Khao Shan” nuclear facility, but has not taken action so far. “Khao Shan,” which is located near the Natanz nuclear facility in Isfahan province in central Iran, is considered one of Iran's most fortified underground nuclear sites. This drove oil higher, with Brent crude rising 1% to $102.

Market focus is now highly concentrated on the upcoming US Consumer Price Index (CPI) data release on Friday. Persistently high oil prices combined with elevated bond yields are complicating the inflation outlook. Whether the Federal Reserve will hike rates at its September 15–16 policy meeting may ultimately be determined by this report. Currently, rate swap markets are implying about a 62% probability of a 25 basis point hike by the Fed this month.

Elias Haddad of Brown Brothers Harriman & Co. stated, "If the CPI data comes in hot, a September rate hike is almost certain and will support a stronger dollar; if the data is soft, expectations for a rate pause will be reinforced, putting the dollar at downside risk."

• Euro Stoxx 50 Index opened up 0.1%, Germany’s DAX opened flat, UK FTSE 100 opened flat, France CAC 40 opened up 0.2%.
• Nikkei 225 closed up 0.2% at 65,270.95 points. Japan's TOPIX closed up 0.2% at 4,054.58 points. South Korea’s KOSPI closed down 0.2% at 7,034.11 points.
• US 10-year Treasury yield held near 4.85%
• German 10-year bond yield rose 8 basis points to 3.44%
• Dollar index edged down 0.1%
• Yen was little changed against the dollar at 153.59
• Brent crude fell 0.7% to $100.49 per barrel
• Spot gold rose 0.7% to $4,429.02 per ounce
• Bitcoin fell to $78,299, an intraday loss of 0.8%.

Brent crude surged this week amid the most intense clashes between the US and Iran since the conflict began in February this year. Iranian officials stated that in the face of a US naval blockade and attacks on its tankers, the country has no intention of backing down and characterizes this war as a threat to national survival.

"Risk premium still exists, and energy supply risks from the Persian Gulf are real," said Kenny Polcari of SlateStone Wealth.

Although oil prices retreated during Asian trading hours, their impact on inflation expectations has already deeply affected market sentiment. Yuting Shao, Senior Director of Global Macro Strategy at Manulife Investment Management, noted, "Oil price volatility and recent upside risk from certain escalations are key risks the market must contend with before year-end."

The US Bureau of Labor Statistics will release the August Producer Price Index (PPI) later Thursday, followed by the CPI report on Friday. Against a backdrop of rising oil prices and yields, market sensitivity to inflation data has increased significantly.

Elias Haddad of Brown Brothers Harriman & Co. stated, "If the CPI data comes in hot, a September rate hike is almost certain and will support a stronger dollar; if the data is soft, expectations for a rate pause will be reinforced, putting the dollar at downside risk."

Prashant Newnaha, Senior Asia-Pacific Rate Strategist at TD Securities in Singapore, also pointed out, "Trump’s promise of a $5,000 bonus may grab headlines, but what the market is really watching now is the actual scale of US Treasury buybacks and what tomorrow’s CPI data will mean."

The swap market has now fully priced in at least two further rate hikes by mid-next year.

The US 10-year Treasury yield remains near 4.85%, close to the three-year high set on Wednesday. The US Treasury previously announced up to $6 billion in long-term bond buybacks, but the amount fell short of some investors’ expectations, so the boost was limited and yields remain under pressure.

The dollar remains hampered by uncertainty over the Federal Reserve's policy path, fluctuating near a four-month low. The Bloomberg Dollar Spot Index edged down 0.1%, extending declines from Wednesday to its lowest level since early May this year.

Meanwhile, the European Central Bank will announce its rate decision on Thursday, with markets broadly expecting a 25-basis-point hike. The euro edged higher against the dollar ahead of the decision.

The combination of high oil prices and high yields is exerting dual pressure on risk assets. Bitcoin fell below $78,300, an intraday drop of 0.8%, and the broader cryptocurrency market also weakened in tandem.

Historically, bitcoin has tended to lag during Federal Reserve tightening cycles. With yields remaining elevated, speculative assets dependent on liquidity are under considerable pressure.