Stocks fall, oil gains on West Asia uncertainty: Markets wrap

Stocks in Asia were set to follow Wall Street lower as elevated oil prices stoke inflation concerns and hopes fade for a deal to end the Iran war.

Equity-index futures pointed to declines in Sydney, Tokyo and Hong Kong on Tuesday, while South Korean markets were set to reopen after a holiday.

Contracts for US equities were little changed after the S&P 500 fell 0.5 per cent and the tech-heavy Nasdaq 100 lost 0.2 per cent in New York. Chipmakers notched gains as details of Anthropic’s surging sales growth stoked bullish sentiment around AI.

West Texas Intermediate held near $85 a barrel after jumping almost 3 per cent in the previous session, reviving concerns that energy costs may reignite inflation and force the Federal Reserve to raise interest rates before year-end.

A Bloomberg gauge of the dollar fell to its weakest since May, while 30-year Treasury yields climbed to their highest since 2007. The 10-year yield rose three basis points to 4.72 per cent on Monday.

Prospects for West Asia peace dimmed after President Donald Trump said he wasn’t interested in extending the expiring agreement with Iran and fighting flared anew in Lebanon. Investors will now monitor oil and bond yields for signs of a lasting inflation shock that may drive wagers on Fed tightening and pressure richly valued equities.

“The situation in West Asia is unsettling, and the yield on the US 10-year note has pushed back above 4.7 per cent,” Matt Maley, chief market strategist at Miller Tabak + Co., said.

“With long-term yields remaining elevated even after last week’s benign inflation data, it is something that is creating some headwinds for investors.”

Asked whether he would seek an extension of the memorandum of understanding signed in June — which technically expires Monday — Trump told reporters, “No.” That truce was meant to give Washington and Tehran a window to reach a more lasting peace deal within 60 days.

Given the rise in oil prices and the lack of progress on the US-Iran diplomatic front, West Asia remains a risk factor, according to Chris Larkin at E*Trade from Morgan Stanley.

Technology shares offered a counterweight to those concerns after a report late Friday showed Anthropic’s second-quarter revenue surged at least 14-fold from a year earlier. The Claude chatbot maker posted preliminary revenue of more than $11.5 billion and positive adjusted operating income. The Philadelphia Semiconductor Index gained 1.6 per cent.

Attention now turns to the health of the US consumer, with Walmart Inc., Home Depot Inc. and Target Corp. due to report earnings in the coming days. The results take on added significance after US retail sales last week posted their biggest decline in more than a year.

The Fed’s latest meeting minutes, also due this week, may provide another catalyst, giving investors a chance “to get a better understanding of the Fed’s behavior in a lower communication environment,” JPMorgan strategists wrote Monday.

Beyond the minutes, the relatively light macro data week could mean the “positive tech inertia” may continue into Nvidia Corp.’s earnings next week, according to the strategists.

Still, elevated long-term Treasury yields remain a source of anxiety. Investors are grappling with heavy government spending, a wave of long-dated debt issuance and inflation that has remained above the Fed’s target for much of the past five years.

“Investors are increasingly focused and concerned about the growing amount of US debt and America’s lack of fiscal discipline,” said Anthony Saglimbene at Ameriprise. “It will be increasingly important for corporate fundamentals and AI momentum to continue meeting expectations if the equity market is to keep looking past a higher-for-longer rate environment.”

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