The dominant macro driver Tuesday was the convergence of a Middle East energy shock and synchronized global monetary tightening, with Brent crude surging 2.75% to $108.59/bbl and WTI climbing 4.49% to $105.94/bbl on reports of attacks on Saudi energy infrastructure — supply-side disruption feeding directly into already elevated inflation expectations. US 10-year Treasury yields reached 4.97%, approaching the 5% threshold not seen since 2007, while the 2-year held at 4.65%, sustaining an inverted curve; markets are pricing ~90–93% probability of a 25 bp Fed hike at Wednesday's FOMC decision, with further tightening expected over the following year. The VIX ticked up to 17.2 and the Nikkei VIX surged 4.23% to 31.06, signalling materially elevated near-term volatility in Japanese equities.
For Asia-Pacific investors, the pressure points are sharply concentrated. USD/JPY extended to 155.13 (+1.11%), keeping the yen near multi-decade lows even as the BoJ is widely expected to hike 25 bps to 1.25% on Friday — the currency's inability to strengthen meaningfully reflects residual carry dynamics and the scale of the USD bid from surging Treasury yields. USD/KRW jumped 1.29% to 1,362.05, compressing margins for Korean exporters and raising funding costs for a market where the KOSPI was the region's worst performer, falling 3.26%. CNY was largely stable at 6.7107 (+0.04%), consistent with PBOC management. Energy-importing economies — Japan, Korea, and parts of Southeast Asia — face the sharpest pass-through from $108 Brent into CPI, while Australian energy and materials names sit on the other side of that trade.