Asian shares mark time as Gulf war keeps oil prices up

Asian shares remained relatively static on Monday, as investors kept a cautious eye on oil prices that experienced significant gains last week. The ongoing lack of progress in resolving the Iran conflict and tensions at the Strait of Hormuz continued to tilt inflation risks upward. Iran had called upon the US to concede defeat, while President Donald Trump encouraged Americans to brace for higher gasoline prices amidst the ongoing conflict.

At least 11 individuals lost their lives in Israeli strikes in southern Lebanon, marking one of the deadliest incidents since the signing of a US-mediated peace framework with neighboring Israel.

Brent crude oil was stable at $88.50 per barrel following a 6% increase last week, while US crude slipped 0.3% to $82.12 per barrel, having gained 5.4% during the same period. Shane Oliver, the chief economist at AMP, noted that despite the absence of a resolution to the Iran/Hormuz impasse, their base case remained that oil prices would remain within a $70-$100 range. The US risk scenario remains that Iran continues to impede lower prices, while the US strives to alleviate tensions when prices exceed $100.

The MSCI's Asia-Pacific index outside Japan was flat on Monday, whereas Japan's Nikkei edged 0.4% higher. Australian resources-focused equities declined 0.3%. South Korean stock markets were closed for a national holiday on Monday. President Trump has directed the Pentagon to substantially reduce joint military exercises with South Korea. The focus is now on China's July economic data release, with expectations of a slowdown in industrial output growth to 4.8% from 5.3% previously and retail sales likely rising 1.5%.

Europe's EUROSTOXX 50 futures increased by 0.2%, while S&P 500 futures rose 0.1%, having hit a record last week. Nasdaq futures climbed 0.2%. The recent bullish stock market rally can be attributed to the decreasing expectation that the Federal Reserve will not raise interest rates in the upcoming month. Last month's US retail sales showed a decline for the first time in nine months, and consumer sentiment weakened more than anticipated, which dampened the Fed's inclination to raise interest rates promptly.

The primary data point for the week is the August S&P Purchasing Managers' Index (PMI) to determine if the mid-year U.S. business activity acceleration will persist.

Earnings reports this week were relatively sparse, with Home Depot, Target, and Walmart serving as highlights for investors to gauge the strength of U.S. consumers. In the bond market, U.S. Treasury yields softened on Monday after a mixed performance the previous week. The two-year U.S. Treasury yield dropped 2 basis points to 4.156%, after falling 3 basis points last week to a seven-week low of 4.0977%.

The yield on ten-year bonds decreased 1 basis point to 4.684%, after surging 4 basis points the week prior. The subdued data release has put downward pressure on the U.S. dollar, with the euro gaining 0.1% at $1.1578, just below a two-month peak of $1.1585, and the dollar slipping 0.1% against the yen to 159.15. Gold maintained its price at $4,381 per ounce, having climbed 0.8% last week.