Oil edges higher as Middle East tensions linger

Oil prices nudged upward as Middle East tensions persisted, with global benchmark Brent crude gaining 0.5% in early Asian trading. The dollar exhibited minimal movement against key currencies. Hong Kong's market opened marginally higher, as traders evaluated Israel's retaliatory strikes on Lebanon and potential US sanctions on Iran, pending the official cessation of the ceasefire on Monday.

Global S&P 500 futures held steady, following a 0.2% decline on Friday. The muted opening occurred in the aftermath of Israel's assertion that 11 fatalities, comprising a prominent Hezbollah figure, resulted from strikes on southern Lebanon the previous day - the most severe since the sides embraced a truce in early June. Prime Minister Benjamin Netanyahu attributed the attacks to a Hezbollah assault that injured three soldiers on Saturday.

This conflict may further complicate the already stalled talks between Washington and Tehran. The two nations are set to conclude their ceasefire agreement on Monday, with no apparent resolution to the Strait of Hormuz issue and the US preparing an "economic isolation" strategy. Analyst Kyle Rodda from Capital.com noted that geopolitical uncertainty remains the paramount obstacle for the market, though the relative lack of military activity in the Middle East has somewhat reduced volatility.

US equities experienced a decline from a record high on Friday, as consumer sentiment fell more than anticipated and retail sales plummeted to their lowest level in over a year. The dollar experienced its weakest performance since May, with traders reducing their expectations of a Federal Reserve rate hike in September. Upcoming China data, including retail sales and industrial production, will be closely scrutinized on Monday.

Economists anticipate a slight uptick in consumer spending in July, while factory output may have decelerated, according to Bloomberg surveys. Wee Khoon Chong, a strategist at BNY, warned that China's "macro momentum continues to deteriorate" as credit growth slows and inflation remains subdued. July activity data could strengthen the slowdown, with retail sales and high-tech investment being crucial indicators of resilience.

Traders in Asia will also focus on Japan's second-quarter growth report on Monday to gauge whether the Bank of Japan might raise its policy rate again next month to bolster the yen. Economists expect growth to have expanded in the June quarter due to increased private consumption and business spending, according to a Bloomberg survey.

The reading may also alleviate concerns over Japan's fiscal expenditures, which seem to have stabilized, according to Elias Haddad, the global head of markets strategy at Brown Brothers Harriman. He suggested that improved Japanese economic activity could further ease fiscal worries by maintaining the debt-to-GDP ratio on a downward path, while bolstering the case for the Bank of Japan to expedite normalization.