Key facts
- A pause in Middle East fighting led to a significant drop in oil prices.
- Lower oil prices eased inflation concerns, boosting bonds and equity futures.
- Markets are anticipating key central bank meetings and a busy earnings season.
- The Federal Reserve, Bank of England, and Bank of Japan are set to hold meetings this week.
- Approximately one-third of S&P 500 companies are scheduled to report earnings.
Global share markets and bonds showed guarded gains on Monday as a halt in Middle East fighting led to lower oil prices, easing inflation concerns. Investors are looking ahead to a busy week featuring central bank meetings and a significant earnings season for S&P 500 companies, including major tech firms.
Iran stated it would cease its attacks if the U.S. reciprocated, though Yemen's Iran-aligned Houthis continued to target Saudi oil installations along the Red Sea coast. Analysts noted that developments in the Middle East appeared to be moving in a positive direction, lending credibility to the idea that oil prices above $100 a barrel can induce de-escalatory behavior.
The decline in oil prices saw Brent crude fall 5.2% to $91.73 a barrel and U.S. crude drop 5.4% to $84.45. This pullback provided relief from inflation fears, prompting markets to slightly reduce the probability of a rate hike from the U.S. Federal Reserve, which is set to meet this week. Analysts at Goldman Sachs noted unusual uncertainty surrounding the Fed's July meeting outcome due to recent internal divisions and unclear positions from some members.
Equities found support from the drop in oil and yields. S&P 500 futures rose 0.7%, Nasdaq futures jumped 1.1%, and European equity futures also saw gains. Japan's Nikkei edged up 0.1%, while South Korea's chip-heavy index eased 1.1%. Chinese blue chips firmed, boosted by chipmaker CXMT Corp's 470% surge on its Shanghai debut.
Approximately one-third of S&P 500 companies are due to report earnings this week, with forecasts indicating a 26.5% increase on last year. However, high expectations and concerns over AI capital expenditure costs mean that even strong results may not satisfy investors. Reports indicate Nvidia is in talks to provide a substantial backstop for an OpenAI data center project.
Key economic data releases include U.S. Q2 GDP growth, expected to pick up to 1.5% annualized, the June PCE price index, and July Michigan consumer sentiment. The Eurozone will release flash Q2 GDP, July economic sentiment, and flash inflation data.
The fall in oil prices contributed to a 4 basis point drop in 10-year Treasury yields to 4.63% and a broad weakening of the dollar. The euro gained 0.3% to $1.1408, while the dollar dipped 0.2% against the yen. Separately, Singapore's central bank unexpectedly tightened monetary policy, causing the Singapore dollar to nudge higher.