Asian Stocks Edge Higher as Oil Prices Rise Amid Gulf Shipping Uncertainty

Asian Stocks Edge Higher as Oil Prices Rise Amid Gulf Shipping Uncertainty​

Asian share markets posted a steady gain on Monday, tracking the upward movement seen in Wall Street despite volatility over shipping lanes in the Strait of Hormuz. The rally in regional equities was supported by a soft U.S. jobs report, which reduced concerns regarding an immediate rise in borrowing costs. However, geopolitical tension stemming from ongoing talks in the Gulf saw oil prices creep higher, raising global energy costs.

Global Energy Markets React to Geopolitical Tensions​

Oil prices climbed as uncertainty over transit through the Strait of Hormuz persisted. Brent crude futures rose 0.9% reaching $84.32 a barrel, while U.S. crude increased by 0.7% settling at $78.74 a barrel. This rise in fuel costs increases the scrutiny on the upcoming U.S. July consumer price report scheduled for Wednesday, where analysts are anticipating a 0.1% rise in the headline CPI and a 0.2% increase for core inflation.

The current market assessment suggests that while a September rate hike from the Federal Reserve is unlikely, repeated prints of the core CPI closer to 0.3% could make such a decision possible. Michael Feroli, chief U.S. economist at JPMorgan, noted that their forecast for core CPI at 0.22% might not prompt a Fed hike, though they are closely watching for any rebound in core goods prices after a two-month decline.

Asian and European Stock Market Performances​

Regional stock markets responded positively to the shift in risk sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3%. The Japanese market saw Nikkei rise 0.6%, while South Korea added 0.5%. This growth followed a rally in Wall Street and Treasuries late last week, which closed at record highs.

In Europe, the market outlook was slightly softer. Futures for EUROSTOXX 50 and DAX both dipped marginally by 0.1%, while FTSE futures declined by 0.4%. U.S. markets saw S&P 500 futures dip 0.1%, though Nasdaq futures remained largely unchanged after a significant climb of 5% the previous week, fueled by strong corporate earnings.

Big Tech Dominates Earnings Reports​

BofA analysts observed that earning per share across nearly 90% of S&P 500 companies improved by 30% year-over-year, even when excluding gains from Alphabet and Amazon. This performance translates to a 76% EPS beat rate, matching the strongest level since 2021.

The AI sector remains the standout driver in corporate profitability, showing a median EPS growth of 28%, significantly outpacing the 12% growth observed in non-AI related stocks. Consensus estimates indicate that the AI sector may slow to 16% growth next quarter. Upcoming earnings reports include those from Applied Materials, Cisco, and CoreWeave.

Bond and Commodity Market Stability​

In fixed income markets, yields on the 10-year Treasuries settled slightly higher at 4.673%. The market is bracing for $125 billion in new issuance this week. The general decline in yields and improved risk appetite caused the U.S. dollar to weaken broadly, with the euro trading at $1.1557, just shy of a seven-week peak.

The dollar remained flat against the yen, which was pegged at 157.85, given ongoing caution regarding potential intervention by policymakers. In precious metals, non-interest bearing gold held steady at $4,342 an ounce, having climbed over 7% last week, buoyed by the drop in yields.