BY COMFORT OGBONNA
Asian stocks moved higher on Monday, following gains on Wall Street after weaker-than-expected U.S. employment data reduced expectations of an immediate increase in borrowing costs. However, rising oil prices and continued uncertainty surrounding the Strait of Hormuz kept investors cautious.
The latest market moves came as investors assessed the outlook for U.S. interest rates alongside developments in the Middle East. Iran said Sunday that an agreement with Oman to establish new shipping lanes through the Strait of Hormuz was in its final stages, but Tehran reiterated that the waterway would only fully reopen after the United States met additional conditions.
The uncertainty surrounding the strategic shipping route pushed oil prices higher.
Brent crude rose 0.6% to $84.04 a barrel, while U.S. crude gained 0.5% to $78.56. Shipping through the Strait of Hormuz remained severely restricted, raising concerns about potential disruptions to global energy supplies.
The increase in oil prices has added importance to the U.S. consumer price report due Wednesday. Economists are expecting headline inflation to rise 0.1% in July, while core consumer prices are forecast to increase 0.2%.
A stronger-than-expected inflation reading could revive expectations that the Federal Reserve may raise interest rates at its September meeting. However, investors have significantly reduced those expectations following the latest employment data.
The futures market is now pricing in roughly a 45% probability of a September rate increase, down from about 67% a week earlier.
Michael Feroli, chief U.S. economist at JPMorgan, said the bank’s forecast for a 0.22% monthly increase in core consumer prices was probably not strong enough on its own to prompt a rate increase in September. However, repeated readings closer to 0.3% could change that assessment.
Investors are also watching for signs that prices of core goods, which had declined for two consecutive months, could begin rising again.
The weaker employment report helped push U.S. Treasury yields lower on Friday and contributed to a rally in stocks, allowing major Wall Street indexes to close at record levels.
Asian markets followed that momentum. Japan’s Nikkei 225 rose 2%, while South Korea’s benchmark index gained 0.8%.
The broadest index of Asia-Pacific shares outside Japan increased 0.7%, reflecting improved investor sentiment across the region.
Chinese blue-chip stocks, however, moved in the opposite direction, falling 0.7%. Recent economic data showed that consumer and producer price inflation in China came in below expectations in July, highlighting continued weakness in domestic demand.
The data raised concerns about the strength of China’s economic recovery and reinforced expectations that policymakers may need to provide additional support to stimulate consumption and business activity.
Strong Corporate Earnings Support U.S. Stocks
U.S. equities continued to benefit from strong corporate earnings.
S&P 500 futures rose 0.1%, while Nasdaq futures gained 0.3% on Monday after the technology-heavy index climbed about 5% last week.
With nearly 90% of S&P 500 companies having reported their latest quarterly results, earnings per share were estimated to be about 30% higher than a year earlier after excluding certain investment gains.
The proportion of companies beating earnings expectations also remained exceptionally strong, with roughly 76% exceeding forecasts.
Artificial intelligence continued to stand out as one of the strongest areas of corporate growth. Companies associated with AI recorded median earnings-per-share growth of about 28%, compared with roughly 12% for businesses less directly linked to the technology.
However, analysts expect AI-related earnings growth to moderate to around 16% in the coming quarter, raising questions about whether the rapid pace of gains can continue.
JPMorgan also raised its 2026 earnings-per-share forecast for the S&P 500 to $365, representing annual growth of about 35%. The bank also increased its year-end target for the index to 8,000 from 7,800.
Corporate earnings reports are expected to be lighter this week, although investors will receive results from several major technology and semiconductor companies, including Applied Materials, Cisco and CoreWeave.
Bonds, Dollar and Gold
In bond markets, the yield on the 10-year U.S. Treasury note edged higher to 4.662%. Investors are preparing for roughly $125 billion in new U.S. government debt issuance during the week.
The recent decline in bond yields and improvement in broader market sentiment put some pressure on the U.S. dollar.
The euro traded near a seven-week high at around $1.1553. The dollar rose 0.3% against the yen to 158.35, although traders remained alert to the possibility of intervention by Japanese authorities if the yen weakens further.
Japanese policymakers have also signaled growing concern about inflation. A summary of views from the Bank of Japan’s July meeting indicated that some officials believe rising price pressures could require the central bank to increase interest rates more quickly than previously expected.
That has strengthened expectations that the Bank of Japan could raise rates as early as September.
Gold prices remained strong, supported in part by lower bond yields. The precious metal was trading around $4,333 an ounce after gaining more than 7% last week.
Because gold does not pay interest, it often becomes more attractive to investors when bond yields fall, particularly when markets expect monetary policy to become less restrictive.
Investors Watch Oil, Inflation and Central Banks
Markets are entering a potentially important week with investors balancing several competing forces.
Strong corporate earnings and expectations for continued growth in artificial intelligence are supporting equities, while weaker U.S. employment data has reduced expectations for near-term interest-rate increases.
At the same time, higher oil prices and uncertainty surrounding the Strait of Hormuz could add to inflationary pressures and complicate the outlook for central banks.
The U.S. inflation report on Wednesday will therefore be closely watched. A softer reading could reinforce expectations that interest rates may eventually decline, while stronger-than-expected inflation could revive concerns about further rate increases.
Developments in the Middle East, particularly the status of shipping through the Strait of Hormuz, will also remain a major influence on energy prices and global markets.
Investors are likely to remain sensitive to changes in oil prices, bond yields, currency movements and central-bank expectations as they assess the outlook for the remainder of the year.
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