Shares Rise in Asia as Oil Slides on Truce Talks

Asian Markets See Modest Gains Ahead of Key U.S. Policy Events

Asian stock markets experienced a slight upward trend on Monday, driven by anticipation of significant developments in U.S. interest rate policy. This week is expected to be particularly eventful, with major economic indicators and central bank statements set to influence global financial markets. Meanwhile, oil prices faced some pressure as concerns over Russian supply disruptions appeared to ease.

U.S. President Donald Trump has shown a shift in his stance, aligning more closely with Moscow regarding the pursuit of a peace deal with Ukraine rather than an immediate ceasefire. This change in position came after a meeting between Trump and Russian President Vladimir Putin in Alaska. Trump is scheduled to meet with Ukrainian President Volodymyr Zelenskiy and European leaders later in the day to discuss next steps, although specific proposals remain unclear for now.

One of the most anticipated events this week is the Jackson Hole symposium hosted by the Kansas City Federal Reserve, taking place from August 21 to 23. Federal Reserve Chair Jerome Powell is expected to address the economic outlook and the central bank's policy framework during the event.

Andrew Hollenhorst, chief economist at Citi Research, noted that Powell is likely to indicate that risks to employment and inflation are becoming balanced, potentially setting the stage for the Fed to move interest rates toward a neutral level. However, he added that Powell may avoid explicitly signaling a rate cut in September, instead waiting for the August jobs and inflation data. This approach would be seen as neutral by markets, which already fully anticipate a September rate cut.

Market expectations suggest an approximately 85% probability of a quarter-point rate cut at the Fed's meeting on September 17, with further easing expected by December. The possibility of lower borrowing costs globally has supported stock markets, with Japan's Nikkei index rising 0.5% to a new record high. However, MSCI's broadest index of Asia-Pacific shares outside Japan remained slightly lower, having reached a four-year peak the previous week.

European stock futures also showed positive movement, with EUROSTOXX 50 futures up 0.3%, while FTSE and DAX futures gained 0.2%. In the U.S., S&P 500 futures edged up 0.1%, and Nasdaq futures added 0.2%, both nearing all-time highs.

Strong Earnings Season Boosts Market Sentiment

The current earnings season has contributed to market optimism, with S&P 500 earnings per share (EPS) increasing by 11% year-over-year. Additionally, 58% of companies have raised their full-year guidance. Analysts at Goldman Sachs highlighted that mega-cap tech companies have delivered exceptional results, with the Magnificent 7 growing EPS by 26% year-over-year in the second quarter, exceeding consensus expectations by 12%.

This week’s earnings reports will offer insights into consumer spending trends, with major retailers such as Home Depot, Target, Lowe's, and Walmart set to release their results.

In bond markets, the likelihood of Fed easing has kept short-term Treasury yields low, while longer-term yields face pressure due to concerns about stagflation and large budget deficits. This has led to the steepest yield curve since 2021. European bonds have also been affected by increased borrowing needs to fund defense spending, pushing German long-term yields to 14-year highs.

Currency Movements and Commodity Prices

Expectations of further Fed easing have weighed on the U.S. dollar, which declined 0.4% against a basket of currencies last week, settling at 97.851. The dollar saw a slight increase against the yen, reaching 147.33, while the euro held steady at $1.1704 after gaining 0.5% the previous week.

The dollar has performed better against the New Zealand dollar, as the country's central bank is widely expected to cut rates to 3.0% on Wednesday.

In commodity markets, gold remained stable at $3,328 per ounce after losing 1.9% the previous week. Oil prices faced challenges as Trump moved away from threats of additional restrictions on Russian oil exports. Brent crude fell 0.4% to $65.61 per barrel, while U.S. crude eased 0.2% to $62.67 per barrel.