Oil prices suffered a heavy decline, bonds rallied, gold advanced, and the US dollar weakened as both the US and Iran paused their military strikes, triggering a broad-based unwinding of risk aversion across global markets.
By the midday close in Asia, Japan's Nikkei 225 index had gained 0.2%, while the broader Topix index rose 1%. South Korea's KOSPI index edged up 0.29%. Brent crude oil briefly plunged more than 7%, falling below $90 per barrel, though it later recovered roughly half of those losses. Simultaneously, the yield on the US 10-year Treasury note fell by 5 basis points to 4.63%. Government bonds across the Asia-Pacific region saw broad-based gains, and European bond futures also rose in tandem, as the retreat in oil prices effectively alleviated market concerns about a resurgence in inflation. The yield on Japan's 10-year government bond also declined by 6 basis points to 2.755%.
This breather sets the tone for global markets this week, but uncertainty has not dissipated. Traders are closely watching the US Federal Reserve's interest rate decision on Wednesday. The recent surge in oil prices had reignited inflation worries, prompting renewed expectations of rate hikes. Meanwhile, earnings reports from tech giants like Microsoft, Meta, Apple, and Amazon are scheduled for release this week, and market doubts persist regarding whether the massive capital expenditures on artificial intelligence can generate sufficient returns.
By the midday close in Asia, the Nikkei 225 was up 0.2%, and the Topix index rose 1%. South Korea's KOSPI index was up 0.29%. The yield on the US 10-year Treasury note fell by 5 basis points to 4.63%. The yield on Japan's 10-year government bond fell by 6 basis points to 2.755%. The Japanese yen strengthened to around 163.55 against the US dollar. Brent crude oil prices fell 7.4%, dropping below $90 per barrel. Gold climbed to near $4,100 per ounce, leading to an overall rise in the precious metals sector. Bitcoin increased by 1.1% to $65,298.31.
Market Sentiment Improves as US-Iran Ceasefire Emerges
After 13 consecutive days of airstrikes against Iran, the United States noticeably paused operations late last Friday without any explanation. The Iranian military stated on Sunday that Tehran had suspended its military response. This easing of tensions pushed the MSCI Asia-Pacific stock index up 0.5%, while Nasdaq 100 futures rose 1.2%, signaling a potential rebound for chip stocks after the sell-off late last week. European stock markets are also expected to follow suit and rise. Japan's Nikkei 225 index closed the morning session up 0.2%, and the Topix index was up 1%.
However, the market remains cautious about whether the easing of tensions can be sustained. Fabien Yip, a market analyst at IG International in Sydney, stated, "The US-Iran ceasefire has pushed down oil prices, but the relief in the stock market has been relatively limited. The back-and-forth in the markets is creating genuine fatigue. Until there is tangible evidence, such as the resumption of navigation through the Strait of Hormuz, the market is unlikely to price in a lasting de-escalation."
Inflation Path Remains Uncertain, Fed Rate Hike Question Unresolved
Oil prices had surged sharply in July, initially overshadowing the positive signal from the US consumer price index for June, which came in lower than expected, further complicating the trajectory of the Fed's policy. Brent crude's year-to-date gains still exceed 50%, and the impact of disrupted supply from the Middle East has not fully faded.
In a report, Krishna Guha, head of central bank strategy at Evercore ISI, wrote, "We believe the Fed is unlikely to raise rates. Hiking immediately after the better-than-expected June inflation data would seem abrupt. If necessary, a rate hike in September would be a smoother path. However, we cannot dismiss the probability of a hike entirely." The Bank of England and the Bank of Japan are also scheduled to announce their policy decisions this week.
Tech Earnings Become the Next Focus
With the oil price risk temporarily receding, market attention is turning to the dense schedule of tech giant earnings this week. Microsoft and Meta are set to report results on Wednesday, followed by Apple and Amazon on Thursday. In Asia, Samsung Electronics and SK Hynix will also release their earnings this week.
Tim Waterer, chief market analyst at KCM Trade in Sydney, stated, "Looking ahead, the earnings performance and capital expenditure plans of tech companies will return to the core of the discussion. Given the lingering concerns in the market about how long it will take for investment returns to fully materialize, traders remain very sensitive to the scale of huge capital expenditures." Analyst Mark Cranfield at Bloomberg noted that investors are re-evaluating the self-reinforcing cycle within the AI theme, which could pose potential valuation risks. It was reported that Nvidia is in talks to guarantee loans for OpenAI, assisting in leasing computing power from a large data center developed by the SoftBank Group.
Asian Currencies Diverge, Indonesian Assets Under Broad Pressure
In the currency market, the Singapore dollar strengthened against the US dollar after the Monetary Authority of Singapore further tightened its monetary policy. Indonesia, however, faced an unexpected shock. The sudden resignation of the Governor of Bank Indonesia, Perry Warjiyo, led to a broad decline in the Indonesian rupiah, government bonds, and stock market. The US dollar weakened broadly against G10 currencies. Gold climbed to near $4,100 per ounce, lifting the entire precious metals sector. The Japanese yen strengthened to around 163.55 against the US dollar.
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