Asian shares little changed as Iran war keeps oil prices up

Asian shares remained stagnant on Monday as investors closely monitored oil prices, which experienced significant gains the previous week. The lack of progress toward resolving the Iran war and the continued halt of oil tanker traffic through the strategic Strait of Hormuz contributed to elevated inflation concerns. Iran urged the US to concede defeat, while US President Donald Trump advised Americans to anticipate higher petrol prices amid ongoing conflict.

At least 11 individuals were reported killed in Israeli strikes in southern Lebanon on Saturday, one of the deadliest incidents since a US-mediated peace framework was agreed upon with neighboring Israel.

Brent crude hovered around US$88.50 a barrel, maintaining a steady price after a 6% increase last week. US crude prices, however, experienced a slight decline of 0.3% to US$82.12 a barrel, after surging 5.4% the previous week. Shane Oliver, chief economist at AMP, noted in a report that while the resolution of the Iran/Hormuz impasse remains elusive, their base case forecast anticipates oil prices to remain within the US$70 to US$100 range.

The persistent absence of a sustainable peace deal, coupled with the Middle East's oil output down by 10 to 15% from normal levels, could result in sustained higher oil prices as reserves dwindle.

Asian markets showcased mixed performances, with MSCI's broadest index of Asia-Pacific shares outside Japan remaining flat, whereas Japan's Nikkei edged up by 0.4%. Australia's resources-driven equities slipped by 0.3%. South Korean markets were closed for a public holiday on Monday. President Trump directed the Pentagon to substantially reduce joint military exercises with South Korea.

Asian markets are eagerly anticipating the release of China's July activity data, as robust global artificial intelligence demand fuels the world's second-largest economy.

Forecasts center around a potential slowdown in industrial output growth to 4.8% from the previous 5.3%, while retail sales are expected to rise by 1.5%. European markets witnessed a slight increase in the Euro Stoxx 50 futures at 0.2%. The S&P 500 futures rose by 0.1%, having reached a record high the previous week, while Nasdaq futures increased by 0.2%.

The bullish trend in stocks has been fueled by the diminished likelihood of the US Federal Reserve raising interest rates in the following month, now estimated at a 69% probability following a wave of subdued data. July saw a decline in US retail sales and a shift in consumer sentiment, further dampening inflation expectations that prevented the Federal Reserve from initiating rate hikes promptly.

The primary data point this week focuses on the August S&P Purchasing Managers' Indices (PMIs) to gauge whether the mid-year acceleration in US business activity will persist. Earnings announcements this week are relatively light, with Home Depot, Target, and Walmart among the few companies to be scrutinized for their impact on US consumer strength.

In bond markets, US Treasury yields experienced a decline on Monday, following a mixed performance last week. The two-year US Treasury yield dropped by 2 basis points to 4.156%, having fallen 3 basis points the prior week to its lowest level in seven weeks at 4.0977%. The ten-year yields slipped by 1 basis point to 4.684%, having risen by 4 basis points last week.

The subdued data has put downward pressure on the US dollar, causing the euro to rise by 0.1% to US$1.1578, just shy of its two-month peak of US$1.1585. The US dollar experienced a 0.1% decline against the yen, trading at 159.15. Gold maintained its price at US$4,381 an ounce, up by 0.8% last week.