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

Monday morning in Asia opened with the kind of uncertainty that makes traders hesitant. Stock indexes moved without conviction—some up, some down, all waiting. The real story wasn't what was happening that day; it was what everyone knew was coming: earnings season, starting with major US banks on Tuesday, and before that, a week of economic data that could reset expectations about inflation and interest rates.

Oil prices fell first and hardest. Brent crude dropped 1.6% to $103.01 a barrel, while US crude lost 1.9% to $90.11. The trigger was political noise from Washington. President Trump had announced an energy ceasefire between Ukraine and Russia, and separately proposed that Russia increase its diesel exports. The idea drew immediate fire from both Republican and Democratic senators, who questioned whether it was even legal. The confusion was real: would Russia actually be able to export more oil, or was this just talk? Markets hate ambiguity about supply, so oil retreated from its recent high of $109.97.

Meanwhile, the conflict in the Middle East kept grinding on—strikes on shipping and airports in the Gulf continued—but the headlines from Washington seemed to matter more to traders than the actual disruptions to commerce. This was the paradox of the moment: geopolitical risk was being priced out by policy speculation.

Across Asia, the mood was cautious. South Korean stocks fell 2.2%. Taiwan eased down 0.5%. The broadest measure of Asia-Pacific shares, excluding Japan, dipped 0.3%. China's blue-chip index managed a small gain of 0.1%. Japanese markets were closed. The US was on a partial holiday. Volume was thin, which meant prices could swing on small orders. Futures on Wall Street pointed slightly higher—the S&P 500 up 0.3%, the Nasdaq up 0.4%—but these were tentative signals, not convictions.

What everyone was really watching was earnings. The S&P 500 was expected to report profit growth of more than 30% for the third quarter, according to LSEG IBES data. But here was the catch: almost all of that growth was concentrated in technology. TSMC, the world's largest maker of advanced AI chips, would report its sixth consecutive quarter of record earnings on Thursday. The question haunting investors was whether this could last. My Bui, an economist at AMP, laid out the worry plainly: all the gains in the S&P 500 since mid-September had come from tech stocks, while companies were borrowing enormous sums to fund artificial intelligence infrastructure. The cost of that borrowing was rising. The US investment-grade credit default swap index—a measure of how much it costs to insure against corporate default—had climbed to its highest level since the US-Israeli war on Iran began. Wider credit spreads meant investors were demanding higher returns to compensate for risk. "Overall, wider spreads suggest investors are questioning whether AI revenues can keep pace with rising borrowing costs," Bui said. The debt being issued to fund AI capital spending, combined with rising high-yield spreads, would make it more expensive for companies to refinance their existing debt as it matured over the next few years.

Treasury yields had already climbed to 24-year highs the previous week, driven partly by the flood of corporate borrowing. This created a vicious cycle: higher yields meant lower valuations for stocks, which meant the discount applied to company earnings had widened. The market was pricing in more caution.

Then came the inflation question. The US would release consumer and producer price data this week, along with retail sales figures. Headline CPI was expected to rise 0.6% for the month, pushing the annual rate to 3.7%, driven by higher energy costs. Core inflation—which strips out volatile food and energy—was expected to be cooler at 0.2% for the month and 2.5% annually. Bruce Kasman, head of global economics at JPMorgan, noted that oil prices remained higher than expected, shipping costs had soared, and product prices were elevated. "The signals on inflation point to a sharp rebound in headline inflation that will squeeze purchasing power and a firming in core inflation that will keep central banks focused on near-term hikes," he said.

The Federal Reserve was not expected to raise rates this month—markets priced in only an 18% chance—but December looked different. An 85% chance of a hike was being priced in for December. The European Central Bank, Bank of Japan, and Bank of England were all expected to move before year's end. In currency markets, the euro had fallen for five weeks straight, weighed down by concerns about government deficits in Europe, and sat at $1.1201. The dollar index held near 17-month highs at 102.25, though the yen had stalled at 158.19 as traders feared Japanese intervention. Gold rose 0.4% to $4,212 an ounce, having bounced more than 1% the previous week. The week ahead would test whether markets could sustain the AI-driven rally or whether rising costs and inflation would force a reckoning.