Share markets are off to a cautious start as oil eases from six-month highs ahead of a week packed with central bank meetings and company earnings that will further test investor confidence in the AI boom.
Brent oil slipped one per cent to $US115.48 ($A165.54) amid reports Qatari mediators were in Tehran on Sunday as part of an effort to de-escalate regional tensions in coordination with the United States.
Brent futures jumped 6.2 per cent last week to their highest weekly close since mid-2022 as Houthi attacks in Saudi Arabia stoked concerns over energy supplies. US crude futures fell 1.1 per cent to $US102.08 ($A146.33) a barrel.
Japan’s Nikkei dipped 0.8 per cent on Monday, after losing four per cent last week, while South Korea fell 0.4 per cent, having shed almost 19 per cent so far this month. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent.
The inflationary pulse from oil is likely to alarm all the central banks meeting this week, with hikes seen as just a matter of time even if some hold for now.
“The main message from global central banks grappling with this year’s macroeconomic surprises is that a relatively shallow rate hike cycle is underway,” said Bruce Kasman, global head of economics at JPMorgan.
“G3 central banks are likely to remain on hold, but Canada should start its tightening cycle and first moves are expected from the UK and Sweden next month.”
New Zealand’s central bank is widely expected to raise rates on Wednesday. Markets assume the US Federal Reserve will stand pat, but imply an 80 per cent chance it will pull the trigger in December. Much the same is priced in for the Bank of Japan and the European Central Bank.
A key reading on US core inflation should show cost pressures remained elevated at 3.1 per cent in September, while the economy is forecast to have grown at a brisk 3.2 per cent annualised pace thanks in part to furious spending on data centres.
“The Fed is set to skip raising rates at its October meeting but is likely to deliver a second hike in December,” analysts at Goldman Sachs said in a note.
“The most important risk is that oil futures are above our forecasts, largely reflecting concerns about potential further conflict with Iran,” they added.
“The more extreme and long-lasting the energy shock becomes, the more Fed participants will worry that inflationary pressures could broaden.”
On Wall Street, S&P 500 futures and Nasdaq futures both edged up 0.2 per cent. In Europe, EUROSTOXX 50 futures firmed 0.2 per cent, while DAX futures gained 0.1 per cent.
Earnings highlights will include the hyperscalers Alphabet , Microsoft and Amazon, among one-third of S&P 500 companies reporting. Results from Intel and Sandisk also could influence the AI trade.
Consensus on Microsoft is for $US90.6 ($A129.9) billion of revenue and an adjusted EPS of $US4.73 ($A6.78), with Amazon at $US202 billion ($A290 billion) of revenue and EPS around $US1.97 ($A2.82). Alphabet revenue is seen at $US128 billion ($A183 billion) and EPS of $US3 ($A4.30).
Equity valuations have been tested by higher bond yields, though Treasuries did manage a rally last week before running into renewed selling on Friday.
Yields on 10-year Treasuries were at five per cent, but off a peak of 5.36 per cent hit early in the month.
In currency markets, the Japanese yen retained its safe-haven appeal at 157.00 per dollar, having gained around 0.8 per cent last week.
The euro held steady at $1.1204 as political unrest in France kept investors wary, though the country did escape a credit downgrade last week.
Sterling held at $1.3346 with Britain’s new finance minister, John Healey, set to deliver his first budget on Wednesday against a backdrop of rising global borrowing costs and high energy prices due to the Iran war.
The Brazilian real was yet to trade in Asia as Brazilian President Luiz Inacio Lula da Silva won an unprecedented fourth term on Sunday, the country’s electoral court said.
In commodity markets, non-interest-bearing gold was a fraction firmer at $US4,001 ($A5,735) an ounce, having fallen more than four per cent last week.
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