Asian Markets Slip as AI Earnings Season Looms, Oil Prices Fall Ahead of Key Fed Signals

Asian stock markets traded lower on Monday as investors turned cautious ahead of a critical earnings season expected to highlight the strength of artificial intelligence (AI) demand. At the same time, falling oil prices eased inflation concerns and reinforced expectations that the U.S. Federal Reserve will keep interest rates unchanged this month.

Markets remained watchful of the U.S.-Iran peace negotiations, although shipping traffic through the Strait of Hormuz continued without disruption, with around 160 vessels passing through the strategic waterway from Monday to Saturday last week.

Oil prices declined after OPEC+ approved another production increase of 188,000 barrels per day beginning in August, following similar output hikes in June and July. Brent crude dropped 0.5% to around $71.79 per barrel, while U.S. West Texas Intermediate crude slipped 0.3% to $68.47.

Lower energy prices, combined with a weaker-than-expected U.S. payrolls report, prompted investors to reduce expectations of a near-term Federal Reserve rate increase. Futures markets now indicate a 78% probability that policymakers will leave interest rates unchanged at the July 29 meeting.

Investors are now looking ahead to Wednesday’s release of the Federal Reserve’s meeting minutes for additional insight into policymakers’ views on inflation and monetary policy.

Richard Yetsenga, head of research at ANZ, said the recent decline in oil prices has reduced the urgency for any immediate Fed action, although persistent inflation remains a long-term concern. He noted that while the bank expects the Fed to remain on hold, policymakers could eventually lose patience if inflation continues to exceed its target.

With rate hike fears easing, attention is shifting toward corporate earnings, particularly in the technology sector where AI-driven demand continues to fuel expectations for strong profits.

Samsung Electronics is expected to be one of the week's biggest market movers. Analysts forecast the world's largest memory chipmaker will report an operating profit of 86 trillion won ($56.35 billion) for the April-to-June quarter, representing an estimated 18-fold increase from a year earlier as demand for AI memory chips remains exceptionally strong.

Despite the positive outlook for chipmakers, regional equity markets weakened. South Korea’s benchmark index fell 1.2% after posting gains of roughly 90% so far this year, while Japan’s Nikkei declined 1.4%. MSCI’s broad index of Asia-Pacific shares outside Japan slipped 0.2%, and Chinese blue-chip stocks traded little changed.

European futures also pointed to a cautious session, with EURO STOXX 50 futures edging lower while DAX and FTSE futures remained broadly flat. In contrast, U.S. futures were firmer, with S&P 500 futures gaining 0.2% and Nasdaq futures rising 0.7% following last week's strong performance.

Geopolitical developments remain in focus as U.S. President Donald Trump is scheduled to attend the NATO summit in Turkey this week, where he is expected to meet Ukrainian President Volodymyr Zelenskiy in an effort to advance discussions aimed at ending the war in Ukraine.

Economic data will also shape market sentiment. Investors are awaiting the U.S. ISM Services PMI, which is forecast to ease slightly to 54.0 while remaining in expansion territory. Several central bankers, including Federal Reserve Governor Christopher Waller and European Central Bank President Christine Lagarde, are also scheduled to speak, offering further clues on the global interest rate outlook.

Meanwhile, New Zealand's central bank is widely expected to raise its benchmark cash rate by 25 basis points to 2.50% on Wednesday. However, the recent decline in oil prices has increased speculation that policymakers could opt to keep rates unchanged.

In currency markets, the U.S. dollar index steadied at 100.880 after retreating following the June jobs report. The euro traded near $1.1434, while the U.S. dollar strengthened modestly against the Japanese yen to 161.79, remaining close to multi-decade highs. Gold prices slipped slightly to $4,166 per ounce after posting a 2% gain last week.