Oil Slips and Asian Stocks Waver as Earnings Season and U.S. Inflation Data Loom

Asian share markets got off to a cautious start on Monday as earnings season loomed as a challenge to sky-high tech valuations, while oil was choppy after strikes on shipping and airports in the Gulf.

There was considerable confusion about President Donald Trump’s announcement of an energy ceasefire between Ukraine and Russia, which neither side had confirmed. Trump’s proposal for Russia to increase its exports of diesel was also under fire from Republican and Democratic senators as potentially illegal.

Brent futures started higher but soon slipped 1.1% to $103.50 a barrel, away from the recent top of $109.97, while U.S. crude futures lost 1.2% to $90.73 a barrel. South Korean stocks fell 1.1%, while MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed.

On Wall Street, S&P 500 futures edged up 0.2%, while Nasdaq futures firmed 0.5%. In Europe, EUROSTOXX 50 futures firmed 0.4%, while DAX futures gained 0.4% and FTSE futures added 0.3%. Trade was thin with Japan markets shut and the U.S. on a partial holiday ahead of the earnings season, with major U.S. banks kicking off on Tuesday.

Inflation data and rate expectations in focus

The market faces fresh challenges this week from U.S. data on consumer and producer prices and retail sales. Rising energy costs are expected to lift the consumer price index by a hefty 0.6% to an annual 3.7%, though the core is seen cooler at 0.2% and 2.5%.

“Oil prices remain higher than we had assumed as shipping costs have soared, and product prices are even higher,” said Bruce Kasman, head of global economics at JPMorgan. “The signals on inflation point to a sharp rebound in headline inflation that will squeeze purchasing power and a firming in core inflation that will keep central banks focused on near-term hikes.”

Markets imply only an 18% chance of a rate rise from the Federal Reserve this month, but an 85% chance of a hike in December. Investors are also wagering on hikes in the EU, Japan and the U.K. before year end. The flood of corporate debt has added to pressure in sovereign markets, driving Treasury yields to 24-year highs last week.

Tech valuations under scrutiny

S&P 500 earnings are expected to have jumped by more than 30% in the third quarter, according to LSEG IBES, though the bulk of that comes from the tech sector. My Bui, an economist at AMP, noted all the gains in the S&P 500 since mid-September had been in tech, while investors were demanding higher yields to fund the massive borrowing for AI.

The U.S. investment-grade credit default swap index, which tracks the cost of insurance against default, had also risen sharply to its highest level since the Iran war began. “Overall, wider spreads suggest investors are questioning whether AI revenues can keep pace with rising borrowing costs,” Bui said.

In currency markets, the euro remained on the defensive at $1.1201, having fallen for five weeks straight amid concerns about government deficits in Europe. The dollar index held near 17-month highs at 102.25, but has stalled on the yen at 158.15 as the threat of Japanese intervention deters speculators. Gold rose 0.3% to $4,206 an ounce, having managed to bounce more than 1% last week.

Reporting based on coverage by Reuters.