Asian Markets Cautious as Oil Tops $90, AI Earnings and Fed Rate Fears Weigh on Sentiment

Asian stock markets traded cautiously on Monday as escalating tensions in the Middle East pushed oil prices above $90 per barrel, fueling inflation concerns and raising expectations that major central banks could keep interest rates higher for longer.

Brent crude jumped 3% after the United States launched a ninth consecutive day of military strikes against Iran, while Tehran continued retaliatory attacks across the region. The surge in energy prices renewed worries that inflation could accelerate despite softer-than-expected U.S. consumer inflation data released last week.

Markets now expect around 29 basis points of Federal Reserve rate hikes by the end of the year, with futures implying a roughly 60% probability of a rate increase as early as September. JPMorgan chief economist Bruce Kasman said the risks are shifting toward an earlier policy tightening than previously anticipated as Fed officials adopt a more hawkish tone.

Higher rate expectations pushed the 30-year U.S. Treasury yield back above the key 5% level, increasing pressure on equity valuations and reducing investor appetite for high-growth technology stocks.

The semiconductor sector remained under pressure after the Philadelphia Semiconductor Index lost 10% last week, leaving it 20% below its June record high. Sentiment also weakened after Chinese AI startup Moonshot introduced its open-weight Kimi K3 model, claiming performance close to Anthropic's frontier AI systems.

Investor attention now turns to earnings from major technology companies, including Alphabet, Intel, and Tesla, which are expected to provide fresh insight into demand for artificial intelligence and semiconductor products.

Despite the recent selloff, Bank of America strategist Savita Subramanian expects second-quarter earnings to exceed consensus estimates by about 5%, forecasting overall profit growth of 28%, with semiconductor earnings projected to surge approximately 130% year over year.

S&P 500 futures gained 0.2%, while Nasdaq futures rose 0.4%. Europe also opened slightly firmer, with EURO STOXX 50 and DAX futures adding 0.2%.

MSCI's Asia-Pacific index outside Japan slipped 0.3%, while South Korea's technology-heavy market fell 0.6% after plunging nearly 9% last week. Meanwhile, gold eased 0.6% to $3,993 an ounce as rising bond yields reduced demand for the non-yielding precious metal.