Asian stocks stumble as earnings season looms, oil slides on Russia export confusion

Oil markets opened Monday morning with an unusual hesitation. Brent crude started the day higher, as it often does, but the momentum didn't hold. By midday it had fallen 1.6% to $103.01 a barrel—well below the recent peak of $109.97. American crude fared worse, dropping 1.9% to $90.11. The culprit was not a sudden glut or demand collapse, but rather a fog of uncertainty hanging over Russian energy exports. President Trump had announced an energy ceasefire between Ukraine and Russia, and proposed that Moscow increase its diesel shipments to global markets. The proposal immediately drew fire from senators on both sides of the aisle, who questioned whether it was even legal. Meanwhile, the conflict in the Gulf continued unabated, with strikes on shipping and airports, yet the market seemed to discount these risks against the larger question: could Russia actually export more oil, or was Trump's proposal merely political theater?

Across Asia, stock markets reflected the same uncertainty. South Korean shares fell 2.2%, while Taiwan eased down 0.5%. The broader MSCI index of Asia-Pacific stocks, excluding Japan, dipped 0.3%. China's blue-chip index managed a small gain of 0.1%. The trading was thin—Japanese markets were closed, and the United States was observing a partial holiday—but the real weight on sentiment came from what was about to happen: earnings season. Major American banks were set to report starting Tuesday, and the market was bracing for the numbers.

What those numbers might reveal was both tantalizing and troubling. The S&P 500 was expected to post earnings growth of more than 30% in the third quarter, according to LSEG IBES data. But the picture was deceptive. Nearly all of that gain was concentrated in the technology sector. My Bui, an economist at AMP, pointed out that since mid-September, every single gain in the S&P 500 had come from tech stocks. The rest of the market had gone nowhere. Meanwhile, companies were borrowing heavily to fund artificial intelligence investments, and investors were demanding higher yields to compensate for the risk. The cost of insuring against corporate default—tracked by the US investment-grade credit default swap index—had risen sharply to its highest level since the US-Israeli conflict with Iran began.

TSMC, the world's largest maker of advanced AI chips, was scheduled to report Thursday. The company was expected to post its sixth consecutive quarter of record earnings. Yet even this milestone raised questions about sustainability. Bui's concern was blunt: could AI revenues actually keep pace with the rising cost of borrowing? Companies were issuing corporate bonds at a furious pace to fund AI capital expenditure. As those bonds matured and needed refinancing over the coming years, higher borrowing costs would bite. The wider spreads in high-yield debt suggested investors were already pricing in this risk.

The broader economic backdrop added pressure. Treasury yields had climbed to 24-year highs the previous week, driven partly by the flood of corporate debt issuance. This in turn had lifted the discount applied to company earnings—meaning stocks had to work harder to justify their valuations. The week ahead promised fresh data on consumer and producer prices, as well as retail sales. Energy costs were expected to push the headline consumer price index up 0.6% month-over-month, reaching an annual rate of 3.7%. The core measure, which strips out volatile items like energy, was seen rising more modestly at 0.2% monthly and 2.5% annually. Bruce Kasman, head of global economics at JPMorgan, warned that oil prices remained stubbornly higher than expected, with shipping costs elevated and product prices even higher. He saw a sharp rebound in headline inflation squeezing purchasing power, while a firming in core inflation would keep central banks focused on rate increases in the near term.

The Federal Reserve was not expected to raise rates this month—markets priced in only an 18% probability—but December looked different. Investors were wagering on an 85% chance of a hike then. Similar bets were being placed on rate increases from the European Central Bank, the Bank of Japan, and the Bank of England before year's end. In currency markets, the euro remained under pressure at $1.1201, having fallen for five consecutive weeks as concerns about European government deficits weighed on sentiment. The dollar index held near 17-month highs at 102.25, though the yen had stalled at 158.19 as the threat of Japanese intervention kept speculators at bay. Gold, which pays no interest, had managed to rise 0.4% to $4,212 an ounce, having bounced more than 1% the previous week. The market was caught between competing forces: the pull of higher yields on bonds and the hedge value of precious metals in an uncertain world.