Asian share markets began the week cautiously as investors prepared for earnings season, which could test the high valuations of tech stocks. Oil prices were volatile following strikes on shipping and airports in the Gulf, with Brent crude falling 1.1% to $103.50 per barrel and West Texas Intermediate (WTI) losing 1.2% to $90.73 per barrel. Confusion surrounded President Donald Trump’s announcement of an energy ceasefire between Ukraine and Russia, which neither side had confirmed, and his proposal for Russia to increase diesel exports faced criticism from both Republican and Democratic senators.
Wall Street futures showed slight gains, with S&P 500 futures up 0.2% and Nasdaq futures rising 0.5%. European markets also saw modest gains, with the Euro Stoxx 50 and DAX each up 0.4%, and the FTSE 100 adding 0.3%. Trading was light due to holidays in Japan and the U.S., ahead of the earnings season, which is expected to see S&P 500 earnings jump over 30% in the third quarter, largely driven by the tech sector.
My Bui, an economist at AMP, noted that all gains in the S&P 500 since mid-September had come from tech, while investors demanded higher yields to fund massive borrowing for AI. The US investment-grade credit default swap index rose sharply to its highest level since the Iran war, suggesting concerns about AI revenues keeping pace with rising borrowing costs. Rising corporate debt has also pressured sovereign markets, driving Treasury yields to 24-year highs last week.
This week, the market faces challenges from US data on consumer and producer prices and retail sales. Rising energy costs are expected to lift CPI by 0.6% to an annual 3.7%, though the core is seen cooler at 0.2% and 2.5%. Bruce Kasman, head of global economics at JPMorgan, noted that oil prices remain higher than expected due to soaring shipping costs. Markets imply only an 18% chance of a rate rise from the Federal Reserve this month, but an 85% chance of a hike in December. Investors are also betting on rate hikes in the EU, Japan, and UK before year-end.