Asian markets trended upward on Monday, tracking Wall Street higher as a cooling U.S. labor market reduced immediate pressure for higher interest rates. While equities gained, Brent crude rose 0.9% to $84.32 a barrel and U.S. crude climbed 0.7% to $78.74, driven by ongoing geopolitical uncertainty in the Strait of Hormuz, according to Reuters.
U.S. Inflation Data and Federal Reserve Outlook
Investors are now turning their attention to the upcoming U.S. consumer price index (CPI) report scheduled for Wednesday. Market analysts expect a 0.1% rise in the headline figure and a 0.2% increase in core inflation, according to Reuters.
Michael Feroli, chief U.S. economist at JPMorgan, noted that while a core CPI forecast of 0.22% likely won’t trigger a hike, consistent readings near 0.3% could change the outlook. “One thing we are watching for is any rebound in core goods prices after a two-month stretch in which they fell,” Feroli stated. Current futures market data shows the probability of a September rate increase has dropped to 44%, down from 67% one week ago.
Corporate Earnings and Sector Performance
The U.S. earnings season has provided a boost to investor confidence, with nearly 90% of S&P 500 companies having reported results. Bank of America analysts reported that earnings per share (EPS) grew 30% year-over-year, excluding investment gains from major tech firms like Alphabet and Amazon. The 76% EPS beat rate marks the strongest performance since 2021, according to Reuters.
Artificial intelligence remains a primary driver of this growth. Bank of America analysts highlighted that median EPS growth for AI-related stocks reached 28%, compared to 12% for non-AI stocks. However, consensus expectations suggest AI-driven earnings growth may slow to 16% in the coming quarter. Key companies scheduled to report earnings this week include Applied Materials, Cisco, and cloud infrastructure provider CoreWeave.
Geopolitical Tensions and Commodity Markets
Oil prices remain sensitive to the lack of progress in Gulf peace talks. Iran reported on Sunday that negotiations with Oman regarding new shipping lanes in the Strait of Hormuz are in their final stages, though the country maintains that the waterway will remain restricted until the United States meets specific conditions, per Reuters.
Meanwhile, the bond market is preparing for a heavy week of supply, with $125 billion in new Treasury issuance expected. Yields on 10-year Treasuries nudged higher to 4.673%. This shift, combined with a general improvement in risk appetite, pushed the U.S. dollar lower. The euro is currently trading near a seven-week high of $1.1557, while the dollar remained flat against the Japanese yen at 157.85.
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