(Sharecast News) - Asia-Pacific markets closed lower on Friday, led by steep losses in South Korea, as investors weighed escalating US-Iran tensions and the prospect of fresh American tariffs.
Oil prices retreated after earlier gains, with Brent crude down 4.04% at $96.62 a barrel and West Texas Intermediate falling 3.54% to $88.93 following the previous session's surge after Houthi attacks on tankers in the Red Sea.
"Markets are ending the week with the worst possible pairing: an AI de-rating and an oil shock," said Patrick Munnelly, market strategy partner at TickMill.
"The technology selloff has gathered pace as investors question whether the returns on AI capex can justify the spending surge, while Brent's move through $100 per barrel has revived the inflation scare and pushed central-bank pricing back in a hawkish direction.
"The result is a classic stagflation-flavoured tape: equities weaker, duration under pressure, and policymakers with less room to look through the noise."
US president Donald Trump said he was close to deciding whether to launch a "massive attack" on Iran, telling Axios that any strikes would be larger than previous action and that Tehran had not "received enough pain yet".
US Central Command completed a 13th consecutive night of strikes, while Washington prepared to impose tariffs of between 10% and 12.5% on 60 countries over alleged forced-labour violations, covering more than 99% of US trade and replacing temporary 10% global duties.
"The US also added a fresh trade shock," Munnelly added.
"New tariffs of 10% to 12.5% will apply almost immediately to around 60 nations, including the UK and euro area, following a US assessment of forced labour in supply chains.
"The contours of this policy were partly anticipated as a route to rebuild parts of the tariff regime previously struck down by the Supreme Court, but the timing is unhelpful.
"Tariffs are another upside inflation risk, landing just as energy prices surge."
Markets in the red across the region
Japan's Nikkei 225 fell 2.73% to 64,611.15 and the Topix declined 1.05% to 4,011.31.
Disco Corporation dropped 12.27%, Kioxia Holdings lost 9.49% and SoftBank Group fell 7.06%.
Core inflation accelerated to 1.6% in June from 1.4% in May, matching forecasts but remaining below the Bank of Japan's 2% target for a fifth month.
Inflation excluding fresh food and fuel eased to 1.7%, its weakest since August 2022, while the flash composite PMI rose to 53.1 in July from 52.8, marking a 16th consecutive month of private-sector expansion.
China's Shanghai Composite dropped 1.61% to 3,814.20 and the Shenzhen Component fell 2.47% to 13,774.68.
Yankuang Energy Group lost 10.93%, Beijing Jingneng Power declined 10.06% and Huadian Energy fell 10.03%.
Hong Kong's Hang Seng Index shed 0.98% to 24,963.23, with Xinyi Glass down 5.14%, CMOC Group falling 4.49% and Laopu Gold losing 4.29%.
South Korea's Kospi 100 tumbled 6.36% to 8,253.63.
Kia Corporation sank 12.88%, Hyundai Autoever declined 11.86% and Doosan Bobcat fell 9.96%.
Australia's S&P/ASX 200 lost 0.75% to 8,772.30, as Centuria Capital dropped 8.49%, IperionX fell 7.81% and DroneShield declined 7.69%.
The country's flash composite PMI climbed to 52.6 in July from 50.4 in June, its highest since January, as services growth reached a six-month high and factory output recorded its strongest performance of the year.
New orders returned to growth, hiring accelerated and cost pressures eased, although export demand and business confidence remained weak.
New Zealand's S&P/NZX 50 slipped 0.17% to 13,772.29, with Skycity Entertainment Group down 3.03%, Fletcher Building falling 2.86% and Port of Tauranga losing 1.97%.
Dollar weaker against regional peers
In currency markets, the dollar fell 0.08% against the yen to JPY 163.73, declined 0.28% against the Australian dollar to AUD 1.4310 and eased 0.17% against the New Zealand dollar to NZD 1.7295.
"Friday's market message: the market is no longer trading a simple AI correction or a simple oil shock," Munnelly concluded.
"It is trading both at once. Tech is being forced to prove the return on AI spending just as Brent above $100 per barrel revives inflation risk and pushes central banks back toward hawkishness.
"The Fed can probably hold next week, the BoE can still justify patience, and the ECB can wait until September.
"But the direction of travel is clear: higher energy has made every central bank's job harder, and higher rates have made every AI valuation harder to defend."
Reporting by Josh White for Sharecast.com.
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