Asian markets mixed following Wall Street gains; heavy earnings week ahead

Asian stock markets opened cautiously on Monday, as earnings season approached and posed a threat to soaring tech valuations, while oil prices were volatile following strikes on shipping and airports in the Gulf. President Donald Trump's announcement of an energy ceasefire between Ukraine and Russia was met with skepticism, as neither side had confirmed the news, and Republican and Democratic senators accused him of proposing an illegal measure for Russia to increase its exports of diesel.

Brent futures rose initially but soon dropped 1.1% to $103.50 a barrel, moving away from their recent high of $109.97, while US crude futures fell 1.2% to $90.73 a barrel. South Korean stocks declined 1.1%, and MSCI's broadest Asia-Pacific index, excluding Japan, remained unchanged. On Wall Street, S&P 500 futures increased slightly by 0.2%, while Nasdaq futures rose 0.5%.

In Europe, EUROSTOXX 50 futures climbed 0.4%, while DAX futures gained 0.4% and FTSE futures rose 0.3%. Trading was light due to Japan's market closure and the partial holiday in the US ahead of the earnings season with major US banks beginning operations on Tuesday. S&P 500 earnings were anticipated to surge by over 30% in the third quarter, according to LSEG IBES, with most of the growth coming from the tech sector.

Economist My Bui from AMP noted that all the gains in the S&P 500 since mid-September had been in tech, and investors were demanding higher yields to fund the substantial borrowing for AI. The US investment-grade credit default swap index, tracking the cost of insurance against default, had also increased sharply to its highest level since the Iran war began, indicating that investors are questioning whether AI revenues can sustain the rising borrowing costs.

This heightened concern about AI capex, coupled with higher high-yield spreads, could lead to increased refinancing costs as existing debt matures over the next few years. As the US Consumer Price Index (CPI) is expected to rise to 3.7% due to higher energy costs, although the core is projected to be cooler at 0.2% and 2.5%, oil prices remain higher than anticipated, driven by elevated shipping costs and product prices, according to JPMorgan's Bruce Kasman.

The inflation outlook suggests a significant rebound in headline inflation, putting pressure on purchasing power, while core inflation should remain firm enough to keep central banks focused on near-term interest rate hikes. Currently, the Federal Reserve has an 18% probability of raising rates this month, but an 85% chance of increasing them in December.

Investors also anticipate hikes in the EU, Japan, and the UK before the end of the year. In currency markets, the euro remained vulnerable at $1.1201, having declined for five consecutive weeks due to concerns about government deficits in Europe. The dollar index approached a 17-month high of 102.25, but has stalled on the yen at 158.15, as the prospect of Japanese intervention dissuades speculators for now.

In commodity markets, non-interest-bearing gold climbed 0.3% to $4,206 an ounce, after bouncing more than 1% the previous week.