Stock markets across Asia surged Monday morning after a temporary halt in hostilities in the Gulf region caused oil prices to plunge sharply, offering some relief from ongoing inflation concerns and lifting bond markets ahead of a critical week for central banks and corporate America.
Iran announced Sunday that it would stop its own military strikes provided the United States did the same, with reports indicating the U.S. military was growing concerned about running low on ammunition supplies. However, Yemen’s Houthi forces — aligned with Iran — continued to strike Saudi oil facilities along the Red Sea coast, raising fresh concerns about threats to another key global shipping route.
Sally Auld, group chief economist at NAB, offered this assessment: “Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides.”
The easing of tensions around the Strait of Hormuz pushed Brent crude oil down 5.2% to $91.73 per barrel, while U.S. crude fell 5.4% to $84.45 per barrel.
The drop in oil prices took some of the edge off inflation fears and led financial markets to slightly lower the odds of an interest rate increase from the Federal Reserve. The central bank is scheduled to meet Wednesday, with markets pricing in roughly a one-in-three chance of a rate hike. Most analysts, however, believe Fed Chair Kevin Warsh would not support raising rates at this time.
Analysts at Goldman Sachs noted: “Investors see the outcome of the July meeting as unusually uncertain, likely because the Fed has been split recently, Warsh’s own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period.” They added: “There will likely be at least one dissent in favour of a hike, but most voters appear unlikely to push for a move this week after the softer June inflation data.”
The Bank of England is set to meet Thursday, followed by the Bank of Japan on Friday. Both institutions are widely expected to leave rates unchanged while keeping a watchful eye on inflation risks.
On Wall Street, futures markets responded positively to the oil decline and falling bond yields. S&P 500 futures climbed 0.8% while Nasdaq futures jumped 1.3%. European markets also moved higher, with EUROSTOXX 50 and DAX futures each gaining 0.6% and FTSE futures adding 0.1%. Japan’s Nikkei rose 0.4%, South Korea’s chip-focused index gained 0.6%, and MSCI’s broad Asia-Pacific index outside Japan was up 0.3%.
Investors are also bracing for a flood of corporate earnings this week, with roughly one-third of S&P 500 companies set to report. Earnings are on pace to show a 26.5% increase compared to last year, according to LSEG IBES data. Major technology companies scheduled to report include Microsoft, Meta Platforms, Amazon, Apple, and Qualcomm, along with numerous industrial, defense, and healthcare firms.
Despite the strong earnings expectations, analysts caution that high investor hopes — combined with growing anxiety over the enormous costs of artificial intelligence infrastructure spending — could mean even strong results disappoint. A Wall Street Journal report highlighted those concerns, noting that Nvidia is reportedly in discussions to provide approximately $250 billion in backing for OpenAI as part of a data center initiative.
On the economic data front, investors will be watching U.S. second-quarter GDP figures, where growth is expected to have accelerated to an annualized rate of 1.5% after a sluggish start to the year. Other key releases include the June PCE price index, personal income and spending data, weekly jobless claims, the second-quarter employment cost index, and July consumer sentiment figures. The euro zone will release its own flash GDP, inflation, and unemployment data as well.
The decline in oil helped push 10-year U.S. Treasury yields down 4 basis points to 4.63%, while the dollar slipped modestly. The euro gained 0.2% to $1.1390, and the dollar fell 0.2% against the Japanese yen to 163.66. In commodities, gold benefited from the drop in yields, rising 1.4% to $4,110 per ounce.
