Asia shares rebound while markets turn cautious as oil rises

Asian shares rallied on Monday after a robust US jobs report lifted expectations for global growth, but rising oil prices kept markets cautious about inflation and interest rates.

Japan’s Nikkei gained 2.0% and South Korea’s market rose 3.0%, while MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.9%. Brent crude increased 0.2% to $96.45 a barrel after climbing almost 10% the previous week. US crude rose 0.4% to $91.85.

Oil prices rose after US forces struck three Iranian tankers and Iran’s Islamic Revolutionary Guard Corps launched ballistic missiles at two US Navy ships. Tehran said it would announce a restricted zone outside the Strait of Hormuz in the coming days.

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Central banks are now on the move.

The energy shock has raised the stakes for US consumer-price data due on Friday. Median forecasts call for core consumer prices to increase 0.2% in August, with a possible 0.3% rise. A higher reading could push 10-year US Treasury yields closer to the 5% level. Yields were near their highest since late 2023 at 4.7840%.

European stocks remained under pressure ahead of a European Central Bank rate decision. Markets see the ECB as certain to raise rates to 2.75% on Thursday, with a 75% chance of another increase to 3.0% by December. Markets also price a 58% chance of a Federal Reserve hike on September 16 and a 70% chance of a move in October. For the Bank of Japan, traders see a 75% chance of a quarter-point increase on September 18.

Bruce Kasman, global head of economics at JPMorgan, said the central banks had been supportive of asset prices by waiting through the energy shock, but that “central banks are now on the move.” He forecast two more rate increases from the ECB and Bank of Japan before year-end and said the Federal Reserve could move earlier and more aggressively than expected.

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Central bank patience through the energy shock has been supportive of asset prices and the credit cycle.