Asian shares make cautious start, Brent eases from six-month high

Asian stock markets started the week cautiously on Monday as oil prices retreated from six-month highs. Brent crude oil fell 1.0% to $115.48, following reports that Qatari mediators were in Tehran to de-escalate regional tensions alongside the United States. Brent futures surged 6.2% last week, reaching the highest weekly close since mid-2022, as Houthi attacks in Saudi Arabia fueled concerns over energy supplies. US crude futures declined 1.1% to $102.08 per barrel.

Japan's Nikkei index slipped 0.8%, after losing 4.0% the previous week, while South Korea fell 0.4%, having shed almost 19% this month. The MSCI's Asia-Pacific index outside Japan decreased 0.1%. Inflationary pressures from oil may alarm central banks meeting this week, potentially leading to interest rate hikes, according to Bruce Kasman, global head of economics at JPMorgan.

Central banks are expected to keep rates relatively low but begin tightening cycles in Canada, UK, and Sweden next month. New Zealand's central bank is anticipated to raise rates on Wednesday. The U.S. Federal Reserve is predicted to maintain current rates, but there is an 80% chance of a rate cut in December. The Bank of Japan and the European Central Bank are also expected to follow a similar pattern.

US core inflation is projected to stay elevated at 3.1% in September, while the economy is forecast to expand at a brisk 3.2% annualized pace, fueled by increased spending on data centers. The Federal Reserve plans to skip a rate hike at its October meeting but could introduce a second hike in December.

The most significant risk is that oil prices may exceed analysts' forecasts, primarily due to concerns about potential further conflict with Iran. On Wall Street, S&P 500 and Nasdaq futures edged up 0.2%. In Europe, EUROSTOXX 50 and DAX futures gained 0.2% and 0.1%, respectively. Earnings updates will focus on hyperscalers such as Alphabet, Microsoft, and Amazon, among other S&P 500 companies reporting results. Intel and Sandisk's earnings could also impact the AI trade.

Consensus forecasts for Microsoft and Amazon are $90.6 billion in revenue and $4.73 and $1.97 in adjusted EPS, respectively. Alphabet's revenue and EPS are expected to be $128 billion and $3.00. Equity valuations have faced challenges from higher bond yields, although 10-year Treasuries rallied briefly before facing renewed selling.

The Japanese yen maintained its safe-haven status at 157.00 per dollar, while the euro stabilized at $1.1204 amid political unrest in France, which avoided a credit downgrade. Sterling held at $1.3346, with the new finance minister of Britain, John Healey, set to present his first budget on Wednesday amid rising global borrowing costs and high energy prices due to the Iran war.