Asia stocks climb, tech shares lead gains ahead of Trump-Xi summit

Share markets in Asia ticked upwards on Monday due to the soaring demand for AI-driven data, which boosted chipmakers. Oil prices, however, softened as optimism over potential Saudi Arabian supply increases counterbalanced reports of a Houthi assault on Riyadh. Trading activity was light, with Japan on its Silver Week holiday until Wednesday.

The U.S. dollar remained unchanged at 157 yen, with investors uncertain if the Bank of Japan would step in to support its currency due to liquidity constraints. The yen experienced a rise on Friday following Japanese authorities' rate checks in the currency market, according to the Nikkei newspaper. The Nikkei index in Japan was absent, but its futures increased by 0.5 percent, while South Korea's tech-heavy index climbed 1.1 percent.

The MSCI's overall Asia-Pacific share index outside Japan experienced a 0.3 percent gain. The S&P 500 futures rose 0.3 percent, and the Nasdaq futures added 0.4 percent. In Europe, the EUROSTOXX 50 and DAX futures both increased by 0.2 percent, while FTSE futures stood still. Bond markets remained tense following a severe sell-off that caused U.S. two-year yields to surge 36 basis points in two weeks to a level not seen since mid-2024 at 4.7604 percent.

Federal Reserve officials' hawkish comments last week prompted wagers that a 56 percent chance of another rate hike in October exists, with a year-end hike considered a certainty. Tightening cycles typically begin strongly, and the Fed rarely stops after a single increase, according to analysts at BofA in a note. With U.S. consumer spending rising 6.3 percent year-over-year, significantly higher than the five percent level linked to core inflation above target, the Fed faces no choice but to curb demand.

Consequently, the bank maintains its expectation of just two more rate hikes this year, in October and December. Central banks from the EU, UK, Japan, Australia, and New Zealand are anticipated to tighten policies again by year-end. The Swiss National Bank, Sweden's Riksbank, and Norges Bank are set to meet on Thursday, but all are expected to hold steady for now.

Bonds have been further complicated by concerns over deficits, with the risk premium on French debt spiking to its highest since the euro zone debt crisis on Friday. German debt might face additional pressure later on Monday following Chancellor Friedrich Merz's conservative party's worst election performance since 1949. The euro remained flat at US$1.1477, having dropped nearly one percent the previous week as the dollar gained broadly.

Oil prices stayed above US$100 after Iran and the United States exchanged fresh threats and after the Houthis attacked Saudi Arabia's capital. Brent oil fell 0.2 percent to US$103.68 a barrel, while U.S. crude dropped 0.3 percent to US$100.02. Reports indicated that Saudi Arabia hoped to swiftly resume some flows through its main east-to-west pipeline damaged in recent attacks, though specifics were scarce.

This pipeline closure has significantly impacted the oil market, according to Vivek Dhar, head of commodities at CBA. They now estimate that global oil and refined product inventories may run out in five to 10 weeks, compared to the previous estimate of 15 to 20 weeks. This could increase pressure on Washington to reach a deal with Iran, at least to restore some flows through the Strait of Hormuz and keep the Bab el-Mandeb passage open.

U.S. President Donald Trump will attend the United Nations General Assembly this week, followed by a meeting with Chinese President Xi Jinping on Thursday. In other commodity markets, the rise in yields negatively affected non-interest-paying gold, which declined 0.2 percent to US$4,370 an ounce.