Asian Stocks Rise as Lower Rate-Hike Bets Offset Gulf Oil Concerns

Asian stock markets opened the week on a firmer footing, following a strong finish on Wall Street, while crude oil prices moved higher as uncertainty surrounding shipping through the Strait of Hormuz continued to weigh on investors.

The latest market moves reflected two competing forces. Expectations that the U.S. Federal Reserve may avoid an interest-rate increase in September provided support for equities, while renewed concerns over energy supplies from the Gulf kept oil prices elevated.

Japan led gains across major Asian markets. The Nikkei climbed 2%, while South Korea's benchmark advanced 1.1%. The MSCI Asia-Pacific index excluding Japan also gained around 0.8%.

The positive tone followed a weaker U.S. employment report, which reduced expectations for an immediate increase in borrowing costs. Futures markets were pricing the probability of a September Federal Reserve rate hike at about 44%, down sharply from roughly 67% a week earlier.

That shift helped U.S. Treasury bonds rally on Friday and contributed to record closing levels for Wall Street's major indexes. Lower borrowing-cost expectations can support equity valuations because they reduce pressure on companies and make risk assets relatively more attractive.

Oil Prices Rise as Hormuz Uncertainty Persists

Crude markets moved in the opposite direction, with traders continuing to assess developments around the Strait of Hormuz, one of the world's most important energy shipping routes.

Brent crude gained about 1% to $84.40 a barrel, while U.S. crude rose 0.8% to $78.80. Shipping activity through the waterway remained severely limited.

Iran said that discussions with Oman over arrangements for new shipping lanes had reached the final stages. However, Tehran also indicated that the waterway would not fully reopen until the United States addressed additional conditions.

The uncertainty has kept traders cautious about the potential impact on global energy supplies. Any prolonged disruption could put further upward pressure on fuel prices and complicate the inflation outlook in major economies.

U.S. Inflation Data Becomes the Next Major Test

Markets are now turning their attention to the U.S. consumer price report scheduled for Wednesday.

Economists are looking for a relatively modest increase in July inflation, with forecasts pointing to a 0.1% rise in the headline measure and a 0.2% increase in core prices.

A stronger-than-expected result could quickly change expectations surrounding Federal Reserve policy. While current forecasts have reduced the likelihood of a September rate increase, persistent inflation could revive concerns that policymakers may need to keep monetary conditions tighter for longer.

Investors are particularly watching prices for goods after two consecutive months of declines. A renewed increase in core goods prices could provide another signal that inflationary pressure is proving more persistent than expected.

Chinese Shares Lag Regional Markets

Not every Asian market participated in the rally.

Chinese blue-chip stocks slipped 0.4% after July consumer and producer price figures came in below expectations. The weaker inflation readings pointed to continued softness in domestic demand and highlighted concerns about the strength of China's economic recovery.

The divergence between Chinese equities and other Asian markets showed how investors were balancing global interest-rate expectations with country-specific economic conditions.

Strong U.S. Earnings Add Support

Corporate earnings from the United States have also provided an important source of optimism for global investors.

With almost 90% of S&P 500 companies having reported results, earnings per share were approximately 30% higher than a year earlier after excluding certain investment gains linked to Alphabet and Amazon. The proportion of companies exceeding earnings expectations was around 76%, one of the strongest readings seen since 2021.

Artificial intelligence-related businesses continued to stand out. Median earnings-per-share growth for AI-linked companies was estimated at 28%, compared with 12% for companies outside the AI theme. However, analysts expect AI-related earnings growth to moderate in the following quarter.

Several technology companies, including Applied Materials, Cisco and CoreWeave, are among the businesses scheduled to report results this week.

Dollar, Bonds and Gold Remain in Focus

U.S. Treasury yields were slightly higher, with the 10-year yield around 4.662%, as markets prepared for approximately $125 billion in new U.S. government debt issuance during the week.

The dollar remained under pressure against several major currencies. The euro was close to a seven-week high, while the Japanese yen remained an important focus for investors because of concerns that excessive weakness could trigger official intervention.

Japanese monetary policy also remained on the radar after Bank of Japan officials highlighted rising inflation risks and suggested that interest rates could need to increase faster than previously anticipated.

Gold, meanwhile, held around $4,320 an ounce after gaining more than 7% during the previous week. Lower bond yields have helped support the precious metal, which does not provide interest income.

Overall, financial markets entered the new week with a relatively positive tone, but investors remained highly sensitive to two major risks: the direction of U.S. inflation and developments affecting energy shipments through the Gulf.