Asian Stocks Rise as Chinese Markets Gain, Oil Prices Remain Elevated Amid Gulf Tensions

By COMFORT OGBONNA

Asian stocks edged higher on Monday, led by gains in Chinese markets as investors awaited key economic data that could provide fresh clues about the strength of the world’s second-largest economy.

At the same time, markets remained cautious about oil prices after crude posted significant gains last week, with uncertainty surrounding the conflict in the Gulf and the lack of progress toward easing tensions continuing to raise concerns about energy supplies.

The broader MSCI index of Asia-Pacific shares outside Japan rose 0.5%, while Japan’s Nikkei share average gained 0.3%. Chinese blue-chip stocks advanced 0.8%, while Hong Kong’s Hang Seng Index climbed 1.6% as investors positioned themselves ahead of China’s July economic activity figures.

The data is expected to show that growth in China’s industrial production slowed to 4.8% in July from 5.3% a month earlier. However, investors are also watching for the possibility of a stronger-than-expected reading, following a sharp increase in Chinese exports that was supported by strong global demand for artificial intelligence-related products.

China’s economic performance remains a major focus for investors across Asia because signs of stronger activity could support regional markets and commodities, while weaker figures could increase pressure on policymakers to introduce additional measures to support growth.

South Korean financial markets were closed on Monday for a public holiday. The Korean won showed little reaction to news that U.S. President Donald Trump had instructed the Pentagon to substantially reduce joint military exercises with South Korea.

Oil markets were mixed after crude prices recorded their strongest weekly gains in months. Investors continued to monitor developments involving Iran, the United States and the wider Middle East, particularly concerns about the potential impact of prolonged tensions on energy supplies and shipping through the region.

Brent crude futures rose 0.2% to $88.67 a barrel after climbing about 6% last week. U.S. West Texas Intermediate crude fell 0.2% to $82.19 a barrel after gaining 5.4% during the previous week.

Iran called on the United States to accept defeat as tensions continued, while Trump warned Americans that gasoline prices could remain elevated as the conflict persists.

The situation has also increased concerns about the security of oil shipments through the Strait of Hormuz, one of the world’s most important energy corridors. Any prolonged disruption to the flow of crude through the region could put additional upward pressure on prices and increase inflation risks for economies that rely heavily on imported energy.

Violence elsewhere in the region added to investor concerns. At least 11 people were killed in Israeli strikes in southern Lebanon on Saturday, according to Lebanon’s health authorities. The strikes were among the deadliest in the area in recent weeks and came despite efforts to maintain a U.S.-mediated peace framework between Lebanon and Israel.

Investors are therefore balancing two competing forces: strong momentum in global equities and renewed concerns over energy prices and geopolitical risks.

“While there is still no resolution to the Iran/Hormuz impasse, our base case remains that oil prices will stay in a $70-$100 range with Iran preventing it going lower and the U.S. moving to try and calm things down whenever it gets above $100,” said Shane Oliver, chief economist at AMP.

He also warned that the risk remains that there could be no lasting peace agreement, while oil flows from the Middle East remain below normal levels. If disruptions persist and reserves are gradually depleted, crude prices could face additional upward pressure.

FED RATE HIKE EXPECTATIONS EASE

Investor sentiment was also supported by declining expectations that the Federal Reserve will raise interest rates at its next meeting.

The U.S. dollar slipped toward a two-month low after a series of weaker-than-expected economic indicators reduced expectations for an imminent increase in borrowing costs.

Markets now see about a 30% probability of a Federal Reserve rate hike next month, down sharply from roughly 50% a week earlier.

U.S. retail sales unexpectedly declined in July, marking the first monthly fall in nine months. Consumer sentiment also weakened more than expected, while recent inflation figures have provided additional evidence that price pressures may be moderating.

The softer economic data has encouraged investors to scale back expectations for tighter U.S. monetary policy, providing support for equities and other risk-sensitive assets.

European markets were also positioned for a stronger opening, with EUROSTOXX 50 futures rising 0.3%. S&P 500 futures gained 0.1%, while Nasdaq futures rose 0.3%. The S&P 500 reached a record high last week as investors responded positively to the reduced likelihood of an immediate rate increase.

Investors will now turn their attention to corporate earnings and economic data for further indications about the health of the U.S. economy.

Major retailers including Home Depot, Target and Walmart are scheduled to report earnings this week. Their results and comments on consumer spending are expected to receive particular attention after the recent decline in retail sales.

Another major focus will be the August purchasing managers’ indexes, which are expected to provide an early indication of whether the acceleration in U.S. business activity seen around the middle of the year is continuing.

In bond markets, U.S. Treasury yields moved lower after a mixed performance last week. The two-year Treasury yield fell 2 basis points to 4.154%, after declining 3 basis points last week and touching a seven-week low of 4.0977%.

The benchmark 10-year Treasury yield also fell 2 basis points to 4.680% after rising 4 basis points during the previous week.

The weaker economic data has also weighed on the dollar against major currencies. The euro rose to a two-month high of $1.1588, while the Australian dollar reached a 10-week high of $0.7105. The New Zealand dollar also climbed to a 10-week peak of $0.5910.

Gold prices strengthened as investors continued to seek protection against geopolitical and economic uncertainty. Spot gold rose 0.4% to $4,391 an ounce after gaining 0.8% last week.

The combination of easing expectations for U.S. monetary tightening, strong equity-market performance and continued geopolitical uncertainty is likely to keep investors focused on economic data, central-bank policy and developments in global energy markets.

For now, Asian equities remain supported by expectations of a less aggressive Federal Reserve, while oil prices remain vulnerable to any escalation in Middle East tensions. Investors are expected to remain particularly sensitive to developments affecting the Strait of Hormuz, China’s economic performance and the direction of U.S. interest-rate policy.