Share markets across Asia rallied on Monday after a weekend de-escalation in parts of the Gulf sent oil prices sharply lower, offering a degree of relief to inflation expectations and supporting bond markets ahead of a week dense with central bank meetings and corporate earnings reports.
Iran said on Sunday it would stop its own attacks provided the United States did likewise, a move reported alongside U.S. concern over shrinking ammunition stocks. The ceasefire signal did not prevent further violence elsewhere: Yemen’s Iran-aligned Houthis conducted strikes on Saudi oil facilities along the Red Sea coast, posing continued threats to a second major shipping corridor for crude.
"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," said Sally Auld, group chief economist at NAB.
The pause in action around the Strait of Hormuz coincided with a large pullback in crude. Brent crude fell 5.2% to $91.73 a barrel, and U.S. crude slid 5.4% to $84.45. That retreat in oil provided some downward pressure on inflation fears and contributed to a modest trimming of the market-implied chance of additional rate hikes from the Federal Reserve.
Attention now turns to the Fed, which convenes on Wednesday. Market pricing suggests roughly a one-in-three chance of a rate increase at that meeting, though many analysts believe a hike is unlikely. Goldman Sachs strategists pointed to an unusual level of uncertainty entering the July meeting - a split within the Fed, an unclear stance from Fed Chair Kevin Warsh, and renewed flare-ups in the region that occurred during the policy blackout period - all factors that have muddied expectations.
Other major central banks have meetings later in the week. The Bank of England meets on Thursday and the Bank of Japan on Friday; both are widely expected to hold rates steady while remaining alert to upside inflation risks.
Equity futures reacted positively to the drop in oil and yields. S&P 500 futures rose 0.8% and Nasdaq futures gained 1.3%. In Europe, EUROSTOXX 50 and DAX futures each added 0.6%, while FTSE futures increased 0.1%. In Asia, Japan’s Nikkei edged up 0.4% and South Korea’s chip-heavy index climbed 0.6%. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.3%.
Corporate earnings will be a major focus this week. Around one-third of S&P 500 companies are scheduled to report, and consensus estimates compiled by LSEG IBES point to aggregate earnings set to rise 26.5% versus the prior year. Expectations are high, and concerns about the substantial capital expenditure tied to artificial intelligence investments mean that even stellar top-line results may not guarantee an upbeat market reaction.
The scale of AI-related spending was underscored by a report that Nvidia held talks to provide a roughly $250 billion backstop for OpenAI as part of a data centre project.
Notable firms reporting this week include Microsoft, Meta Platforms, Amazon, Apple and Qualcomm, alongside a wide range of industrial, defence and healthcare companies.
Economic data will also shape market moves. Key U.S. releases include an advance reading of second-quarter GDP, where growth is expected to accelerate to an annualised 1.5% following a weak start to the year. The U.S. calendar also features the June personal consumption expenditures price index, personal income and consumption figures, weekly jobless claims, the Q2 employment cost index, and the July Michigan consumer sentiment reading. The euro zone will publish flash Q2 GDP, July economic sentiment and consumer confidence metrics, flash inflation, and June unemployment.
Bond markets reacted to the oil decline as well. The 10-year Treasury yield fell four basis points to 4.63%, and the dollar eased broadly. The euro gained 0.2% to $1.1390, while the dollar slipped 0.2% versus the yen to 163.66. In commodities, the lower yields supported non-interest-bearing gold, which climbed 1.4% to $4,110 an ounce.
Market action in individual stocks was mixed in the context of these broader moves. Short-term changes in futures and index values reflected relief on the inflation front and cautious positioning ahead of both central bank decisions and a heavy corporate reporting slate.
Investors enter the week balancing the immediate relief from lower energy prices against lingering geopolitical risks, concentrated earnings risk in big technology names, and a string of important macroeconomic data and policy decisions that could quickly change the near-term market outlook.