SYDNEY, July 27 — Share markets rallied in Asia on Monday as a pause in fighting in the Gulf dragged oil prices lower, easing inflation risks and boosting bonds ahead of a packed week of central bank meetings and earnings reports.
On Sunday, Iran said that it would halt its own attacks as long as the United States (US) did the same, with the US military reportedly concerned about dwindling supplies of ammunition.
Yet, Yemen's Iran-aligned Houthis had still attacked Saudi oil installations along the Red Sea coast, threatening another waterway vital to the global oil trade.
"Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above US$100 a barrel seems to induce de-escalatory behaviour from both sides," said NAB group chief economist Sally Auld.
The lull in fighting over the Strait of Hormuz saw Brent crude slide 4.7 per cent to US$92.27 a barrel, while US crude dropped 5.0 per cent to US $84.89.
The pullback in oil provided some relief from inflation fears and led markets to slightly pare the probability of rate hikes from the US Federal Reserve (US Fed).
The central bank meets on Wednesday, and markets imply around a one-in-three chance of a rate rise, though most analysts doubt US Fed chair Kevin Warsh would be in favour of a move.
"Investors see the outcome of the July meeting as unusually uncertain, likely because the US Fed has been split recently, Warsh's own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period
"There will likely be at least one dissent in favour of a hike, but most voters appear unlikely to push for a move this week after the softer June inflation data," said Goldman Sachs analysts.
The Bank of England holds its meeting on Thursday, and the Bank of Japan on Friday, and both are expected to hold steady while remaining cautious about inflation risks ahead.
Tech earnings to test bulls
Equities took comfort in the drop in oil and yields, sending S&P 500 futures up 0.8 per cent, while Nasdaq futures jumped 1.3 per cent. In Europe, EUROSTOXX 50 futures gained 0.8 per cent, while DAX futures rose 0.9 per cent and FTSE futures added 0.2 per cent.
Japan's Nikkei edged up 0.2 per cent, while South Korea's chip-heavy index firmed 0.2 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent.
Chinese blue chips gained 0.3 per cent as chipmaker CXMT Corp surged 500 per cent in its Shanghai trading debut after raising US$8.6 billion (RM35.12 billion) in Asia's biggest initial public offering this year.
LSEG IBES data has revealed that about one-third of S&P 500 companies are due to report this week, with earnings on track to boast a 26.5 per cent increase on last year.
With expectations so high and mounting unease over the vast cost of AI capex, even blockbuster results may not be enough to please investors on the day.
The massive sums involved were underlined by a Wall Street Journal report that Nvidia was in talks to provide a roughly US$250 billion (RM1.02 trillion) backstop for OpenAI as part of a data centre project.
Companies reporting include tech darlings Microsoft, Meta Platforms, Amazon, Apple, and Qualcomm, along with a host of industrial, defence and healthcare stocks.
Data highlights include US advance second-quarter (Q2) gross domestic product (GDP), where growth is seen picking up to an annualised 1.5 per cent after a soft start to the year. The June Personal Consumption Expenditures price index, personal income and consumption, weekly jobless claims, Q2 employment cost index and July Michigan consumer sentiment round out the diary.
The euro zone's schedule includes flash Q2 GDP, July economic sentiment, consumer confidence, flash inflation and June unemployment.
The pullback in oil helped 10-year US Treasury yields fall four basis points to 4.63 per cent, and nudged the dollar broadly lower. The euro added 0.3 per cent to US$1.1408, while the dollar dipped 0.2 per cent on the yen to 163.54.
The Singapore dollar nudged up after the country's central bank unexpectedly tightened monetary policy by allowing a slightly faster appreciation in the currency.
Indonesia's rupiah weakened after the country's central bank governor stepped down in a surprise move that analysts said could rattle investors worried about the central bank's independence and the country's fiscal management.
In commodity markets, the drop in yields helped non-interest-paying gold climb 1.3 per cent to US$4,103 an ounce.
