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Asian shares came under pressure on Friday as investor euphoria over tech stocks gave way to inflation fears that saw Treasury yields spike to one-year highs and rising bets on a U.S. rate hike this year.
Oil prices kept climbing amid the lack of progress to open the Strait of Hormuz, and as U.S. President Donald Trump said China wanted to buy U.S. oil. Attacks on one ship and the seizure of another stoked concerns about energy supplies, with Brent crude futures up 5.7% this week to $107 a barrel.
All eyes are on Beijing where Trump is set to wrap up his two-day state visit on Friday. Trump's entourage includes Tesla (TSLA.O) CEO Elon Musk and Jensen Huang, chief executive of chipmaker Nvidia (NVDA.O).
Nvidia surged 4.4% overnight after the U.S. cleared the sales of the company's H200 chips to Chinese firms, lifting the S&P 500 and Nasdaq to new record highs.
The euphoria, however, failed to spread to Asia. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.2% on Friday, more than wiping out this week's gain so far.
Japan's Nikkei (.N225) also dropped 1.2% as data showed the country's wholesale inflation accelerated to 4.9% in April, the fastest pace in three years, leaving the Bank of Japan on track to raise interest rates.
South Korea's KOSPI (.KS11) topped 8,000 points for the first time but ran into profit-taking and was last down 3%. China's blue-chip (.CSI300) eased 1%, while Hong Kong's Hang Seng index (.HSI) fell 0.9%.
"President Trump's China visit is ongoing and offering a welcome break from Iran war angst. But that is what we are going right back to," said Padhraic Garvey, regional head of research, Americas at ING.
"The front and centre issue is delivered inflation, which remains troubling from a Treasury market perspective. We maintain a viewpoint centred in an upside test for yields in the weeks ahead."
TREASURY PAIN
Rising inflation risks driven by the surge in oil prices are weighing on investor appetite for U.S. Treasuries, with a run of soft auctions this week — spanning three-year notes, 10-year notes and 30-year bonds — underscoring the market's fragility.
The latest 30-year bond sale ended at 5.046%, the highest yield for that maturity since August 2007. The higher yield attracted some buyers on Thursday but 30-year Treasury yields were on the march again on Friday , up 5 basis points to 5.06%, the highest since July 2025.
While the long end of the Treasury curve grabbed headlines, borrowing costs are also spiking at the short end. The yield on U.S. two-year notes rose 6 basis points on Friday to 4.056%, the highest since May 2025, while the 10-year yield also climbed 6 bps to 4.518%.
The dollar was set for a 1.2% week gain - the most in two months - supported by the lack of progress in the Gulf. Solid U.S. retail sales data also had markets pricing in a 45% probability that the Federal Reserve will have to raise rates this year, even under the new leadership of Kevin Warsh.
The greenback's strength pushed the yen to the weaker side of 158 per dollar and kept traders on alert for further intervention from Tokyo.
Sterling fell to a one-month low of $1.3385, having slid 0.9% in the previous session following the resignation of British health minister Wes Streeting, deepening the political crisis there.
