Stocks trade cautiously in Asia, Brent off six-month top

Asian stock markets cautiously traded on Monday as oil prices retreated from six-month peaks ahead of a week filled with central bank meetings and corporate earnings that would further scrutinize the AI boom. Brent oil prices fell 1.6% to $114.88 following reports of Qatari mediators in Tehran to de-escalate regional tensions alongside the US.

Brent futures surged 6.2% last week to their highest weekly close since mid-2022 due to Houthi attacks in Saudi Arabia raising concerns over energy supplies. US crude futures declined 1.9% to $101.29 a barrel. Japan's Nikkei fell 0.5% after slipping 4.0% last week, while South Korea's benchmark index dropped 1.1%, having lost nearly 20% this month.

MSCI's primary Asia-Pacific index excluding Japan slipped 0.1%. Chinese domestic companies declined 1.0% as China's ruling Communist Party commenced its fifth plenum in Beijing. Stock markets have declined for 11 weeks straight due to worries about domestic demand, even as exports remain robust. Inflationary pressures from oil could alarm central banks meeting this week, with rate hikes likely.

Bruce Kasman, JPMorgan's global head of economics, stated that a modest rate-hike cycle is underway, with G3 central banks possibly remaining on hold, while Canada starts tightening, and the UK and Sweden tighten next month. New Zealand's central bank is expected to raise rates on Wednesday. Markets anticipate the US Federal Reserve to hold steady but imply an 80% chance of a December rate hike.

The Bank of Japan and European Central Bank are viewed similarly. US core inflation is projected to remain elevated at 3.1% in September, with the economy growing at a robust 3.2% annualized pace, driven by intense data center spending. Goldman Sachs analysts predict the Fed will skip a rate increase at its October meeting but likely raise rates in December.

The key risk is that oil futures may exceed forecasts due to concerns over potential further conflict with Iran. Hyperscalers like Alphabet, Microsoft, and Amazon, along with one-third of S&P 500 companies reporting earnings, will test the AI hype on Wall Street. Apple, Samsung, and SK Hynix are among the Asian companies reporting this week.

Bond yields have risen, although Treasuries rallied last week before facing renewed selling. The Japanese yen remains a safe-haven currency at 156.70 per dollar, having gained 0.8% last week, while the euro increased slightly to $1.1222 after France avoided a credit downgrade. The British pound stood firm at $1.3346, while Brazil's real had not yet traded in Asia due to President Luiz Inacio Lula da Silva winning a fourth term in unprecedented elections.