Oil prices rose on Tuesday as negotiations between the United States and Iran over a peace deal and the reopening of the Strait of Hormuz hit an impasse, while Asian shares drifted on protracted uncertainty over the global inflation outlook.
U.S. President Donald Trump responded with his own demands on Monday to Iran's conditions for a peace deal, calling for Iran to pay compensation for those killed in wars, attacks and protests, in a rhetorical escalation likely to complicate efforts to reopen the crucial waterway.
Brent crude futures edged up to $88.09 per barrel and U.S. crude futures rose to $82.52, both the highest levels since July 31, after the contracts rallied roughly 5% on Monday.
"We're now in a bit of a Mexican standoff, if you'd like, in terms of who blinks first," said Tony Sycamore, a market analyst at IG.
"This is going to be almost a war of attrition now," he said. "You probably can see the (oil) market sitting around the $75 to $95 range while we wait to see who blinks first."
The latest uptick in fuel costs raises the stakes for the U.S. July consumer price report due on Wednesday, at which expectations are for a monthly rise of 0.1% in the headline reading and 0.2% for the core measure.
Any upside surprise could rekindle bets of a Federal Reserve rate hike next month, with the odds currently a coin toss.
"We think the risks are skewed towards a hot print, which would probably drive a rebound in rate expectations and, potentially, renewed worries about stagflation," said Jonas Goltermann, chief markets economist at Capital Economics.
"Overall, our assessment remains that the U.S. economy is running a bit hotter than a 'Goldilocks' situation. That points to higher interest rates."
Trading of cash U.S. Treasuries was closed in Asia on Tuesday owing to a holiday in Japan, but futures fell slightly, implying higher yields.
The Reserve Bank of Australia (RBA) held its cash rate steady at 4.35% for a second straight meeting on Tuesday, saying the economy was slowing as expected, but warned it might yet hike again if needed to control inflation.
MSCI's broadest index of Asia-Pacific shares outside Japan (.MISX00000PUS) swung between losses and gains and was up 0.36%, while South Korea's KOSPI (.KS11) rose 1.3%, as the latest escalation in Gulf hostilities kept market sentiment fragile.
Nasdaq futures edged 0.34% higher while S&P 500 futures added 0.13% after Wall Street ended lower in Monday's cash session.
EUROSTOXX 50 futures were flat, while FTSE futures fell 0.05% and DAX futures edged 0.07% higher.
Overnight, Nvidia (NVDA.O) said it partnered with six major financial institutions to launch compute financing platforms aimed at raising more than $500 billion in third-party capital for AI infrastructure, underscoring the scale of the sector's investment boom.
"A small part of me was left wondering whether this is how it felt when sub-prime mortgages first became a mainstream product - the innovation that eventually helped trigger the GFC," added Sycamore.
Hong Kong's Hang Seng Index (.HSI) was down 0.6%, while China's CSI300 blue-chip index (.CSI300) eased 0.05%.
Among currencies, the yen was back in the spotlight, struggling on the weaker side of 159 to the dollar and well off last week's high of 155.20 after several suspected rounds of intervention, including a joint one by Japan and the United States.
"The market likely remains vigilant about further joint U.S.-Japan yen-buying intervention, so USD/JPY breaching 160 in the very near term seems unlikely," Nomura analysts said in a note.
"However, the latest price action indicates there are quite a lot of USD/JPY dip-buyers, after the pair reached the 156 to 157 range for the first time since May."
The dollar got a marginal lift from the renewed climb in oil prices, keeping the euro away from a 1-1/2-month high as it traded at $1.1541, while sterling eased from Monday's one-month top and changed hands at $1.3511.
The Australian dollar briefly slipped in the wake of the RBA decision and was down 0.07% by $0.7049.
Elsewhere, spot gold was up 0.33% to $4,402.52 an ounce.
