Asian shares, bonds rally as oil slides on Gulf ceasefire pause

Share markets across Asia rallied on Monday after a pause in Gulf hostilities pulled oil prices sharply lower, easing inflation concerns and lifting bonds ahead of a packed week of central bank meetings and corporate earnings.

Iran said on Sunday it would halt its own attacks as long as the United States did the same, with the US military reportedly concerned about dwindling ammunition supplies. Yemen's Iran-aligned Houthis, however, had still struck Saudi oil installations along the Red Sea coast, threatening another key waterway for global oil trade.

"Net, it looks as if developments in the Middle East have moved in a positive direction over the weekend, adding some credibility to the notion that oil above $100 a barrel seems to induce de-escalatory behaviour from both sides," said Sally Auld, group chief economist at NAB.

Brent crude slid 4.7% to $92.27 a barrel, while US crude dropped 5.0% to $84.89, as the lull in fighting eased pressure around the Strait of Hormuz.

The oil pullback also eased inflation fears, leading markets to slightly trim the odds of a Federal Reserve rate hike. The Fed meets Wednesday, with markets pricing in roughly a one-in-three chance of a rate increase, though most analysts doubt Chair Kevin Warsh would back such a move.

"Investors see the outcome of the July meeting as unusually uncertain, likely because the Fed has been split recently, Warsh's own position remains unclear, and some of the re-escalation with Iran occurred during the blackout period," analysts at Goldman Sachs said. They added that while at least one dissent in favour of a hike is likely, most voters appear unlikely to push for one this week following softer June inflation data.

The Bank of England meets Thursday and the Bank of Japan on Friday; both are expected to hold rates steady while remaining watchful of inflation risks.

Equities drew support from the drop in oil and yields. S&P 500 futures rose 0.8% and Nasdaq futures jumped 1.3%, while in Europe, EUROSTOXX 50 futures gained 0.8%, DAX futures rose 0.9%, and FTSE futures added 0.2%.

In Asia, Japan's Nikkei edged up 0.2% and South Korea's chip-heavy KOSPI firmed 0.2%. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5%, while Chinese blue chips gained 0.3%.

Chipmaker CXMT Corp surged 500% on its Shanghai trading debut, after raising $8.6 billion in Asia's biggest initial public offering this year.

About a third of S&P 500 companies are due to report earnings this week, with profits on track to rise 26.5% from last year, according to LSEG IBES data. Given high expectations and growing unease over massive AI capital spending, even strong results may fail to satisfy investors.

Underlining the scale of AI-related spending, the Wall Street Journal reported that Nvidia was in talks to provide a roughly $250 billion backstop for OpenAI as part of a data center project.

Companies reporting this week include Microsoft, Meta Platforms, Amazon, Apple and Qualcomm, alongside a range of industrial, defence and healthcare firms.

On the data front, the US advance Q2 GDP reading is expected to show growth picking up to an annualised 1.5% after a soft start to the year. Other releases include the June PCE price index, personal income and consumption data, weekly jobless claims, the Q2 employment cost index, and July Michigan consumer sentiment. In the eurozone, the schedule includes flash Q2 GDP, July economic sentiment, consumer confidence, flash inflation, and June unemployment data.

The drop in oil pulled 10-year Treasury yields down 4 basis points to 4.63% and weighed broadly on the dollar. The euro rose 0.3% to $1.1408, while the dollar slipped 0.2% against the yen to 163.54.

The Singapore dollar edged up after the country's central bank unexpectedly tightened monetary policy, allowing faster currency appreciation. Indonesia's rupiah weakened after the country's central bank governor unexpectedly stepped down, a move analysts said could unsettle investors concerned about the central bank's independence and the country's fiscal management.

In commodities, the drop in yields helped gold, which pays no interest, climb 1.3% to $4,103 an ounce.