Stocks trade cautiously in Asia; Brent off six-month top

SYDNEY – Global shares edged up on Oct 26, as oil eased from six-month highs ahead of a week packed with central bank meetings and corporate earnings that will further test investor confidence in the AI boom.

Brent oil slipped around 2% to US$114.60 following reports that Qatari mediators were in Tehran on Oct 25, coordinating with the US in an effort to de-escalate regional tensions.

Brent futures jumped 6.2% last week to their highest weekly close since mid-2022 as Houthi attacks in Saudi Arabia stoked concerns about energy supplies.

The Houthi group in Yemen said on Oct 26 that it had attacked Saudi Arabia’s East-West crude oil pumping stations and Riyadh airport, but there was no immediate confirmation from Riyadh.

Japan’s Nikkei dipped 0.2% after losing 4% last week, while South Korea’s main index fell 0.5%, having shed almost 20% so far in October.

MSCI’s broadest index of Asia-Pacific shares excluding Japan was flat.

Chinese blue chips ended roughly unchanged, as China’s ruling Communist Party began its fifth plenum in Beijing.

The market has fallen for 11 weeks straight amid concerns about domestic demand, even as exports remain strong.

The inflationary pulse from oil is likely to alarm all the central banks meeting this week, with hikes seen as just a matter of time, even if some hold for now.

“The main message from global central banks grappling with this year’s macroeconomic surprises is that a relatively shallow rate-hike cycle is under way,” said Bruce Kasman, global head of economics at JPMorgan.

“G-3 central banks are likely to remain on hold, but Canada should start its tightening cycle, and first moves are expected from the UK and Sweden next month.”

New Zealand’s central bank is widely expected to raise rates on Oct 28.

Markets assume the US Federal Reserve will stand pat, but they imply an 80% chance that it will pull the trigger in December.

Much the same is priced in for the Bank of Japan and the European Central Bank.

A key reading on US core inflation should show cost pressures remained elevated at 3.1% in September, while the economy is forecast to have grown at a brisk 3.2% annualised pace thanks in part to furious spending on data centres.

“The Fed is set to skip raising rates at its October meeting but is likely to deliver a second hike in December,” analysts at Goldman Sachs said in a note.

“The most important risk is that oil futures are above our forecasts, largely reflecting concerns about potential further conflict with Iran,” they added.

“The more extreme and long-lasting the energy shock becomes, the more Fed participants will worry that inflationary pressures could broaden.”

Hyperscalers to test AI hype

On Wall Street, S&P 500 and Nasdaq futures gained 0.3%. In Europe, EUROSTOXX 50 futures firmed 0.3%, DAX futures gained 0.3% and FTSE futures gained 0.4%.

Earnings highlights will include the hyperscalers Alphabet, Microsoft and Amazon, among the one-third of S&P 500 companies reporting. Results from Intel and Sandisk also could influence the artificial intelligence trade.

Consensus for Microsoft is US$90.6 billion in revenue and an adjusted earnings per share of US$4.73, with Amazon at US$202 billion in revenue and earnings per share around US$1.97. Alphabet revenue is seen at US$128 billion with earnings per share of US$3.

In Asia, SK Hynix and Samsung Electronics both report this week.

SK Hynix also said it will unveil shareholder return measures on Oct 28, responding to a report that it is considering a special dividend of about 16 trillion won.

Equity valuations have been tested by higher bond yields, though Treasuries did manage a rally last week before running into renewed selling on Oct 23.

Yields on 10-year Treasuries were flat at 5%, well off a peak of 5.36% hit early in October.

In currency markets, the Japanese yen slipped, as the dollar gained 0.3% to trade around 157.28 yen, having gained around 0.8% last week.

The euro added 0.1% to US$1.121 after France dodged a credit downgrade last week.

Sterling held at US$1.3346 with Britain’s new finance minister, John Healey, set to deliver his first budget on Oct 28 against a backdrop of rising global borrowing costs and high energy prices due to the US-Israeli war on Iran.

Futures on the Brazilian real were down over 10% at 0900 GMT (5.05pm in Singapore) as Brazilian President Luiz Inacio Lula da Silva won an unprecedented fourth term on Oct 25, according to the country’s electoral court.

Senator Flavio Bolsonaro refused to concede and said he would seek the annulment of the run-off election.

In commodity markets, non-interest-bearing gold climbed back above US$4,000 an ounce. Spot gold rose 0.5% to US$4,014.49 by 0924 GMT, having fallen more than 4% last week and dropping to US$3,975 on Oct 23, its lowest level since July 20. REUTERS