Stock Markets Take a Step Back with Oil Prices on the Rise
The stock markets in Asia followed Wall Street's lead in rising on Monday after a weak US jobs report reduced the risk of a short-term increase in borrowing costs. However, the lack of progress in the Gulf peace talks led to a slow increase in oil prices. The Brent crude …
Intelligence analysis by Llama
The stock markets in Asia followed Wall Street's lead in rising on Monday after a weak US jobs report reduced the risk of a short-term increase in borrowing costs. However, the lack of progress in the Gulf peace talks led to a slow increase in oil prices.
Imagine you're at a big store, and the prices of the things you want to buy are going up. That's what's happening with oil prices right now. It's making people think that maybe the US will raise interest rates soon, which could be good or bad for the economy.
Analysis
Oil Prices on the Rise Despite Gulf Peace Talks Progression
The stock markets in Asia followed Wall Street's lead in rising on Monday after a weak US jobs report reduced the risk of a short-term increase in borrowing costs. However, the lack of progress in the Gulf peace talks led to a slow increase in oil prices. The Brent crude rose 0.6% to $84.04 per barrel, while the US crude increased 0.5% to $78.56 per barrel.
The recent surge in oil prices has increased the expectation for the US Consumer Price Index (CPI) report in July, which is set to be released on Wednesday. Analysts predict a 0.1% increase in the overall index and a 0.2% increase in the underlying index. Any positive surprise could rekindle speculation about a rate hike by the Federal Reserve in September.
"Our forecast for the underlying CPI of 0.22% probably won't be firm enough to provoke a rate hike by the Fed in September, although repeated readings close to 0.3% could do so," said Michael Feroli, chief economist for the US at JPMorgan.
The market for futures has reduced the probability of a move in September to around 45%, down from 67% a week ago. The decline in risk helped the US Treasury bonds to rise on Friday and saw Wall Street close at record highs.
The Nikkei of Japan rose 2%, while South Korea added 0.8%. Chinese blue-chip stocks fell 0.7% after data showed that the CPI and producer price inflation were lower than expected in July, highlighting the weakness of domestic demand.
Analysts at BofA note that, with almost 90% of the S&P 500 results published, earnings per share increased 30% year-over-year after excluding the gains of Alphabet and Amazon. A BPA beat rate of 76% equaled the highest level since 2021.
"AI continues to stand out, with a median EPS growth of 28% versus 12% for non-AI stocks, although the consensus expects AI to slow to 16% in the next quarter," they said in a note.
Analysts at JPMorgan revised their estimate of BPA for 2026 to $365, marking a 35% annual growth, and raised their price target for the S&P 500 to 8,000 from 7,800.
Earnings results are lighter this week, but include Applied Materials, Cisco, and CoreWeave, a cloud infrastructure technology company.
In the bond market, US Treasury bond yields at 10 years rose slightly to 4.662%, as the market prepares for a new $125 billion issuance this week.
The decline in yields and the overall improvement in risk led to a general decline in the US dollar, with the euro near a seven-week high at $1.1553.
The dollar appreciated 0.3% against the yen to 158.35, although investors remain cautious about a possible intervention if the yen depreciates too much.
The Bank of Japan's monetary policy officials warned about the growing risks of inflation that could require a faster pace of interest rate hikes than expected, according to a summary of their July meeting, which strengthened the possibility of a hike in September.
Stock Market Reaction to Gulf Peace Talks and US Jobs Report
The stock market's reaction to the Gulf peace talks and the US jobs report has significant implications for the global economy and investors.
The recent surge in oil prices has increased the expectation for the US CPI report in July, which is set to be released on Wednesday. Analysts predict a 0.1% increase in the overall index and a 0.2% increase in the underlying index. Any positive surprise could rekindle speculation about a rate hike by the Federal Reserve in September.
The market for futures has reduced the probability of a move in September to around 45%, down from 67% a week ago. The decline in risk helped the US Treasury bonds to rise on Friday and saw Wall Street close at record highs.
Impact on Global Economy and Investors
The stock market's reaction to the Gulf peace talks and the US jobs report has significant implications for the global economy and investors.
The recent surge in oil prices has increased the expectation for the US CPI report in July, which is set to be released on Wednesday. Analysts predict a 0.1% increase in the overall index and a 0.2% increase in the underlying index. Any positive surprise could rekindle speculation about a rate hike by the Federal Reserve in September.
The market for futures has reduced the probability of a move in September to around 45%, down from 67% a week ago. The decline in risk helped the US Treasury bonds to rise on Friday and saw Wall Street close at record highs.
Key points
- The stock markets in Asia followed Wall Street's lead in rising on Monday after a weak US jobs report reduced the risk of a short-term increase in borrowing costs.
- The lack of progress in the Gulf peace talks led to a slow increase in oil prices.
- The recent surge in oil prices has increased the expectation for the US CPI report in July, which is set to be released on Wednesday.
- Analysts predict a 0.1% increase in the overall index and a 0.2% increase in the underlying index.
- Any positive surprise could rekindle speculation about a rate hike by the Federal Reserve in September.
If the US CPI report in July comes in better than expected, it could rekindle speculation about a rate hike by the Federal Reserve in September. This could lead to a stronger US dollar and higher interest rates, which could be good for the economy in the long run.
However, if the US CPI report in July comes in worse than expected, it could lead to a decline in the US dollar and lower interest rates, which could be bad for the economy in the long run.