Asian shares edged higher on Monday, led by Chinese stocks as investors awaited key economic data while keeping a close watch on oil prices following sizeable gains last week.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, while Japan’s Nikkei gained 0.3 per cent.
Chinese blue-chip stocks advanced 0.8 per cent, while the Hang Seng Index gained 1.6 per cent ahead of China’s July economic activity data.
Markets are expecting a slowdown in industrial output growth to 4.8 per cent from 5.3 per cent previously. However, investors are also positioning for a potential upside surprise following strong export growth supported by robust global demand for artificial intelligence-related products.
The US dollar, meanwhile, slipped towards a two-month low following weaker-than-expected economic data, including an unexpected decline in retail sales.
The softer data has reduced expectations of an imminent Federal Reserve rate increase.
According to the CME Group’s FedWatch tool, markets are now pricing in a 30 per cent probability of a rate hike next month, down sharply from about 50 per cent a week earlier.
South Korea’s stock markets were closed on Monday for a public holiday.
The Korean won showed a subdued reaction after US President Donald Trump instructed the Pentagon to substantially reduce joint military exercises with South Korea.
Oil prices were mixed after recording strong gains last week as investors monitored the ongoing conflict in the Gulf and uncertainty surrounding the flow of crude from the region.
Brent crude rose 0.2 per cent to $88.67 a barrel after gaining 6 per cent last week.
US crude, meanwhile, slipped 0.2 per cent to $82.19 a barrel, having advanced 5.4 per cent in the previous week.
The oil market remains sensitive to developments involving Iran and the wider Middle East.
Iran on Saturday called on the United States to accept defeat, while Trump urged Americans to accept higher gasoline prices as the conflict continues.
Tensions also remained elevated after at least 11 people were killed in Israeli strikes in southern Lebanon on Saturday, according to the Lebanese Health Ministry.
The strikes were among the deadliest in the weeks since Lebanon agreed to a US-mediated peace framework with neighbouring Israel.
Analysts said the unresolved tensions around Iran and the Strait of Hormuz remained a major risk for global energy markets.
“While there is still no resolution to the Iran/Hormuz impasse, our base case remains that oil prices will stay in a $70-$100 range with Iran preventing it going lower and the U.S. moving to try and calm things down whenever it gets above $100,” said Shane Oliver, chief economist at AMP.
US equities also ended lower on Friday, with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite each falling by less than 0.3 per cent.
Market participants remain concerned that the lack of a sustainable peace agreement could keep oil supplies below normal levels.
“The risk remains that there will be no sustainable peace deal, the flow of oil out of the Middle East remains down 10%-15% on normal levels and that we will have to face higher oil prices as reserves run down,” Oliver said.
Investors are therefore balancing expectations of weaker US monetary policy against renewed energy-price risks, with China’s economic data and developments in the Middle East likely to remain key drivers of market sentiment in the near term.
