Asia shares bounce, others cautious as oil rises

Asian stock markets surged on Monday (Sep 7) following a strong US jobs report, which many viewed positively for global growth despite the potential for interest rate hikes. Simultaneously, oil prices ticked upward following the US and Iran's attacks on ships in the Gulf. Tehran announced a restricted zone would be declared outside the Strait of Hormuz in the coming days, after US forces targeted three Iranian tankers and Iran's Islamic Revolutionary Guard Corps launched missiles at two US Navy ships.

Consequently, Brent crude gained 0.2%, reaching $96.45 per barrel, while US crude rose 0.4% to $91.85 per barrel. This inflationary effect heightens the importance of the upcoming US consumer prices report this week, and is a key factor in the European Central Bank's expected rate hike to 2.75% on Thursday. Futures markets suggest a 75% likelihood of another rate hike to 3.0% by December.

European stocks remained cautious, with the EUROSTOXX 50 and DAX futures dropping 0.1%, while the FTSE stayed flat. On Wall Street, the US holiday resulted in light trading, with both S&P 500 and Nasdaq futures slightly lower. A major focus for the week is the US August Consumer Price Index (CPI) report on Friday, with forecasts indicating a 0.2% increase in the core CPI, although there is a 0.3% risk.

MSCI's broader Asia-Pacific index excluding Japan gained 0.9%. High bond yields pose a challenge for equities, with Treasury 10-year yields nearing their highest since late 2023 at 4.7840%. A significant CPI reading could push yields closer to the 5.0% threshold. The Federal Reserve now anticipates a 58% chance of a rate hike during their Sep 16 meeting, with a 70% probability of a move in October.

Bruce Kasman, JPMorgan's global head of economics, expects core CPI to rise by 0.21%, potentially keeping the Fed on hold for now. Central banks' cautious approach to the energy shock has supported asset prices and the credit cycle, according to Kasman, although they are now taking action. The dollar index showed a slight gain from the jobs report, but concerns over rising US debt and policy uncertainties limit its purchasing power, prompting investors to seek scarce assets like gold.

The dollar index stood at 99.135, near recent lows at 98.558. The euro remained close to its August peak of $1.1711, while the dollar weakened to 156.07 yen, still falling short of its recent support level at 155.00.