Brent falls 1% before rate decisions

Brent crude fell 1.0% to $115.48 a barrel on Monday, a Reuters market report published by Channel NewsAsia said, as Asian equities opened lower before rate decisions and technology earnings.

The move followed a 6.2% weekly gain in Brent to its strongest week-ending level since mid-2022, leaving energy costs central to the inflation debate facing policymakers this week.

US crude futures fell 1.1% to $102.08 a barrel. Japan’s Nikkei edged down 0.8% after a 4.0% decline last week, while South Korean shares fell 0.4% after losing almost 19% so far this month.

MSCI’s broad Asia-Pacific index outside Japan eased 0.1%. The report linked the softer oil price to reports that Qatari mediators were in Tehran on Sunday as part of an effort coordinated with the United States to lower regional tensions.

“The main message from global central banks grappling with this year's macroeconomic surprises is that a relatively shallow rate hike cycle is underway,” Bruce Kasman, global head of economics at JPMorgan, said.

Kasman said Group of Three central banks were likely to remain on hold. The Group of Three refers to the main central banks of the United States, the euro area and Japan: the Federal Reserve, European Central Bank and Bank of Japan.

Markets expect the Fed to hold rates at its October meeting, while pricing an 80% chance of a December increase. Similar expectations are priced for the Bank of Japan and the European Central Bank, while New Zealand’s central bank is widely expected to raise rates on Wednesday.

“The Fed is set to skip raising rates at its October meeting but is likely to deliver a second hike in December,” Goldman Sachs analysts said in a note cited in the report. “The most important risk is that oil futures are above our forecasts, largely reflecting concerns about potential further conflict with Iran.”

Core inflation, which strips out volatile food and energy prices, is expected to have stayed elevated at 3.1% in September. The US economy is forecast to have grown at a 3.2% annualised pace, helped partly by spending on data centres.

Atlas360 reported on Oct. 23 that WTI crude was trading near $102 as the war in Iran entered its eighth month, keeping investor attention on supply risk. Brent also moved above $117 last week on Middle East tensions, Strait of Hormuz risk and Libyan output losses, according to Atlas360 background reporting.

Technology earnings add a second test for markets. Alphabet, Microsoft and Amazon are among one-third of S&P 500 companies reporting this week, with consensus estimates putting Amazon revenue at $202 billion, Alphabet at $128 billion and Microsoft at $90.6 billion.

Amazon’s expected revenue is more than twice Microsoft’s, according to Atlas360 calculations, giving its results particular weight for investors judging whether spending tied to artificial intelligence can support valuations. Consensus estimates put adjusted earnings per share at $4.73 for Microsoft, $3.00 for Alphabet and about $1.97 for Amazon.

S&P 500 futures and Nasdaq futures both edged up 0.2%. In Europe, Euro Stoxx 50 futures firmed 0.2% and DAX futures gained 0.1%, while 10-year Treasury yields stood at 5.0%, below a 5.36% peak earlier this month.

In currencies, the yen traded at 157.00 per dollar after gaining about 0.8% last week. The euro held at $1.1204, sterling traded at $1.3346 and gold was fractionally higher at $4,001 an ounce after falling more than 4% last week.

The next dated central-bank checkpoint comes on Oct. 28, when the Reserve Bank of New Zealand is due to decide rates, with markets widely expecting an increase. The same day, Britain’s finance minister, John Healey, is due to deliver his first budget against rising global borrowing costs and high energy prices linked to the Iran war.

This week’s earnings from Alphabet, Microsoft and Amazon will test consensus revenue estimates of $128 billion, $90.6 billion and $202 billion, respectively.

Source: wire report, Reuters via Channel NewsAsia, Oct. 26