By Wayne Cole
SYDNEY, Oct 26 (Reuters) - Stock markets traded cautiously on Monday as oil eased from six-month highs ahead of a week packed with central bank meetings and corporate earnings that will further test investor confidence in the AI boom.
Brent oil slipped 1.6% to $114.88 following reports that Qatari mediators were in Tehran on Sunday as part of an effort to de-escalate regional tensions in coordination with the US.
Brent futures jumped 6.2% last week to their highest weekly close since mid-2022
as Houthi attacks in Saudi Arabia stoked concerns about energy supplies. US crude futures fell 1.9% to $101.29 a barrel. [O/R]
Japan's Nikkei dipped 0.5% after losing 4.0% last week, while South Korea's main index fell 1.1%, having shed almost 20% so far this month. MSCI's broadest index of Asia-Pacific shares excluding Japan eased 0.1%.
Chinese blue chips lost 1.0%, as China's ruling Communist Party began its fifth plenum in Beijing. The market has now fallen for 11 weeks straight amid concerns about domestic demand - even as exports remain strong.
The inflationary pulse from oil is likely to alarm all the central banks that are 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 this year'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 next month."
New Zealand's central bank is widely expected to raise rates on Wednesday. Markets assume the US Federal Reserve will stand pat, but they imply an 80% chance that 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% in September, while the economy is forecast to have grown at a brisk 3.2% annualised pace thanks in part to furious spending on data centres.
"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."
HYPERSCALERS TO TEST AI HYPE
On Wall Street, S&P 500 futures edged up 0.1%, while Nasdaq futures were flat. In Europe, EUROSTOXX 50 futures firmed 0.3%, while DAX futures gained 0.3% and FTSE futures gained 0.4%.
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 $90.6 billion in revenue and an adjusted EPS of $4.73, with Amazon at $202 billion in revenue and EPS around $1.97. Alphabet revenue is seen at $128 billion with EPS of $3.00.
In Asia, SK Hynix and Samsung Electronics both report this week.
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 4.97%, well off a peak of 5.36% hit early in the month.
In currency markets, the Japanese yen retained its safe-haven appeal at 156.70 per dollar, having gained around 0.8% last week.
The euro added 0.1% to $1.1222 after France dodged a credit downgrade last week.
Sterling held at $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 US-Israeli war on Iran.
The Brazilian real had yet to trade in Asia as Brazilian President Luiz Inacio Lula da Silva won an unprecedented fourth term on Sunday, according to the country's electoral court.
Brazilian Senator Flavio Bolsonaro refused to concede and said he would seek the annulment of the runoff election.
An ETF of Brazilian stocks traded in Tokyo shed 15%, reversing gains made when Bolsonaro led in the first round of voting.
In commodity markets, non-interest-bearing gold was a fraction firmer at $4,001 an ounce, having fallen more than 4% last week. [GOL/]
(Reporting by Wayne Cole; Editing by Chris Reese and Thomas Derpinghaus)
