Japan, South Korea stocks fall as Asian shares make cautious start ahead of earnings

[SYDNEY] Share markets got off to a cautious start on Monday (Oct 26) as oil eased from six-month highs ahead of a week packed with central bank meetings and company earnings that will further test investor confidence in the artificial intelligence boom.

Brent oil slipped 1 per cent to US$115.48 amid reports Qatari mediators were in Teheran on Sunday as part of an effort to de-escalate regional tensions in coordination with the US.

Brent futures jumped 6.2 per cent last week to their highest weekly close since mid-2022 as Houthi attacks in Saudi Arabia stoked concerns over energy supplies. US crude futures fell 1.1 per cent to US$102.08 a barrel.

Japan’s Nikkei dipped 0.8 per cent, after losing 4 per cent last week, while South Korea fell 0.4 per cent, having shed almost 19 per cent so far in October. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1 per cent.

The inflationary pulse from oil is likely to alarm all the central banks meeting this week, with hikes seen as just a matter of time even if some hold for now.

“The main message from global central banks grappling with 2026’s macroeconomic surprises is that a relatively shallow rate hike cycle is underway,” said Bruce Kasman, global head of economics at JPMorgan.

“G3 central banks are likely to remain on hold, but Canada should start its tightening cycle and first moves are expected from the UK and Sweden (in September).”

New Zealand’s central bank is widely expected to raise rates on Wednesday. Markets assume the US Federal Reserve will stand pat, but imply an 80 per cent chance it will pull the trigger in December. Much the same is priced in for the Bank of Japan and the European Central Bank.

A key reading on US core inflation should show cost pressures remained elevated at 3.1 per cent in September, while the economy is forecast to have grown at a brisk 3.2 per cent annualised pace thanks in part to furious spending on data centres.

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“The Fed is set to skip raising rates at its October meeting but is likely to deliver a second hike in December,” analysts at Goldman Sachs said in a note.

“The most important risk is that oil futures are above our forecasts, largely reflecting concerns about potential further conflict with Iran,” they added.

“The more extreme and long-lasting the energy shock becomes, the more Fed participants will worry that inflationary pressures could broaden.”

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On Wall Street, S&P 500 futures and Nasdaq futures both edged up 0.2 per cent. In Europe, Eurostoxx 50 futures firmed 0.2 per cent, while DAX futures gained 0.1 per cent.

Earnings highlights will include the hyperscalers Alphabet, Microsoft and Amazon, among one-third of S&P 500 companies reporting. Results from Intel and Sandisk also could influence the AI trade.

Consensus on Microsoft is for US$90.6 billion of revenue and an adjusted earnings per share (EPS) of US$4.73, with Amazon at US$202 billion of revenue and EPS around US$1.97. Alphabet revenue is seen at US$128 billion and EPS of US$3.00.

Equity valuations have been tested by higher bond yields, though Treasuries did manage a rally last week before running into renewed selling on Friday.

Yields on 10-year Treasuries were at 5 per cent, but off a peak of 5.36 per cent hit early in October.

In currency markets, the Japanese yen retained its safe-haven appeal at 157.00 per US dollar, having gained around 0.8 per cent last week.

The euro held steady at US$1.1204 as political unrest in France kept investors wary, though the country did escape a credit downgrade last week.

Sterling held at US$1.3346 with Britain’s new finance minister, John Healey, set to deliver his first budget on Wednesday against a backdrop of rising global borrowing costs and high energy prices due to the Iran war.

The Brazilian real was yet to trade in Asia as Brazilian President Luiz Inacio Lula da Silva won an unprecedented fourth term on Sunday, the country’s electoral court said.

In commodity markets, non-interest bearing gold was a fraction firmer at US$4,001 an ounce, having fallen more than 4 per cent last week. REUTERS