Asia shares hesitant as oil climbs, earnings loom

Asian share markets opened hesitantly on Monday, influenced by rising oil prices stemming from the escalating conflict in the Gulf, which has reignited inflation concerns. A significant week of earnings reports from major technology companies is also poised to test investor confidence in the artificial intelligence sector.

Brent crude oil surpassed $90 a barrel for the first time in over a month, following nine consecutive days of U.S. attacks against Iran and subsequent Iranian strikes in the region. This surge in fuel costs has revived worries about inflation, despite recent U.S. consumer price data surprising on the downside. Futures markets are now pricing in a higher probability of Federal Reserve rate hikes by year-end, with some economists suggesting a shift towards an earlier hike than previously anticipated.

The market's caution is amplified by questions surrounding the sky-high valuations of chip and AI stocks. The Philadelphia Semiconductor Index has already seen a notable decline, shedding 10% last week and standing 20% below its June record high. Adding to the pressure, a Chinese AI firm recently announced a new open-weight model that reportedly rivals a leading U.S. competitor's model.

This backdrop sets the stage for a crucial week of earnings reports from tech giants like Alphabet, Intel, and Tesla. Analysts remain cautiously optimistic about the earnings outlook, with forecasts predicting significant growth, particularly in the semiconductor sector. Despite positive futures trading in the U.S. and Europe, Asia-Pacific markets outside Japan experienced a slight dip, with South Korea's chip-heavy market also losing ground after a volatile previous week.

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Our forecast is for a more gradual turn toward a Fed hike in 2027, but the balance of risks is shifting in the direction of an earlier hike than expected