Asian stocks edge higher, oil up amid Gulf confusion

Asian stock markets followed Wall Street's lead on Monday, climbing higher after a subdued US jobs report reduced the risk of immediate interest rate hikes. However, the path to open trade lanes in the Gulf remained uncertain, with oil prices inching upward despite Iran's claims of nearing an agreement with Oman on new shipping routes through the strategic Strait of Hormuz.

As of the latest figures, Brent crude oil had risen by 0.9% to $84.32 a barrel, while US crude oil increased by 0.7% to $78.74 a barrel. These rising fuel costs added pressure ahead of the US July consumer price report due on Wednesday, where analysts anticipate a slight uptick in both headline and core inflation figures. JPMorgan's chief US economist, Michael Feroli, noted that while the forecast for core CPI is around 0.22%, a stronger-than-expected print could push the Federal Reserve to raise interest rates at their September meeting.

The futures market's belief in a September rate cut has also decreased to 44%, from 67% a week earlier. This shift in sentiment played a role in lowering the risk associated with borrowing costs, contributing to a rally in US Treasuries and helping Wall Street achieve record highs on Monday. Japan's Nikkei index and South Korea's Kospi index both rose by 0.6% and 0.5%, respectively, mirroring the positive sentiment.

Meanwhile, European markets saw a slight decline, with EUROSTOXX 50 and DAX futures falling by 0.1% and FTSE futures dropping by 0.4%. S&P 500 and Nasdaq futures remained relatively stable, with only minor changes in their respective indexes. Analysts at BofA highlighted that nearly 90% of S&P 500 earnings had been reported so far, with earnings per share up by 30% year-to-date, excluding investment gains at Alphabet and Amazon.

Notably, 76% of earnings per share (EPS) growth was driven by companies that mentioned artificial intelligence (AI) in their earnings calls. AI-related stocks showed a higher median EPS growth of 28% compared to 12% for non-AI related stocks, although consensus expects AI growth to decelerate to 16% in the next quarter. Earnings for the week were lighter, with notable companies including Applied Materials, Cisco, and CoreWeave.

In bond markets, yields on 10-year Treasuries edged higher at 4.673%, while the broader market braced for $125 billion in new issuance this week. The drop in yields and the overall improvement in risk conditions led to a broader decline in the US dollar, with the euro nearing a seven-week high at $1.1557. The dollar held steady against the Japanese yen at 157.85, albeit with continued caution regarding potential yen intervention if it depreciated too far.

In the commodity markets, gold, which has benefited from falling yields, remained stable at $4,342 an ounce, up more than 7% over the previous week.