Asian stocks climb as oil, geopolitics cap gains ahead of tech earnings
Asian equities edged higher on Monday, though investor caution prevailed as escalating Middle East tensions and looming mega-cap tech earnings tested the sustainability of this year's AI-driven rally.
The MSCI Asia Pacific Index gained 0.5% as regional technology and chip stocks rebounded from recent losses. Japan’s Nikkei 225 climbed 1.85% and the Topix advanced 1.61%, while South Korea’s Kospi jumped 2.11%. The rally was not universal; Australia’s S&P/ASX 200 declined 0.58% and South Korea’s Kosdaq slipped 0.72%.
Despite the broad advances, investor sentiment remained highly cautious heading into a critical week for corporate earnings. Market participants are relying on upcoming results from major technology firms to determine if this year's AI-driven equity rally can sustain its momentum. Tesla and Alphabet are set to report on Wednesday, with Microsoft, Meta, Apple, and Amazon following next week.
That tech focus is colliding with rising geopolitical and macroeconomic risks. Crude oil prices climbed as Middle East tensions escalated following US military strikes on Iranian targets. President Donald Trump had warned Tehran "will pay" for the killing of three American soldiers.
The risk to energy supplies intensified when Iran-backed Houthi rebels announced a plan to ban maritime traffic from Saudi Arabia. This directly threatens a Red Sea shipping route Saudi Arabia uses to export millions of crude barrels daily via a cross-country pipeline. Riyadh responded by stating it would take "all necessary measures" to safeguard its vessels.
Trade frictions also resurfaced, adding to the cautious atmosphere. The Trump administration revealed plans to impose a 50% tariff on certain Canadian imports, accusing Ottawa of unfair treatment of US alcohol, automobile, and dairy exports. Slated for implementation in 30 days, the duties would mark one of the harshest trade measures leveled against America’s second-largest trading partner.
In fixed income, UK gilts came under heavy selling pressure after remarks by Burnham regarding the country's fiscal trajectory. Yields on long-term UK government bonds spiked to their highest levels since late May after Burnham indicated he would seek "any flexibility" while technically adhering to the government's borrowing and spending rules.
US stock futures reflected this crosscurrent of risks, trading flat on Monday evening. The pause followed a lacklustre regular session where the Dow Jones Industrial Average fell 307.16 points, or 0.59%, dragged lower by a 2% drop in Apple shares. The S&P 500 slipped 0.19% and the Nasdaq Composite eased 0.05%, while Dow futures later edged up just 14 points.
