Asian stocks wobble as earnings season nears, oil slides on Russia export confusion

Monday morning in Sydney opened with markets moving in different directions, a sign of the uncertainty ahead. Stock exchanges across Asia stumbled into the week as investors braced for earnings season, while crude oil prices retreated on confusion about Russian energy supplies. The geopolitical picture had grown murkier over the weekend: President Trump announced a proposed energy ceasefire between Ukraine and Russia, then suggested Moscow could increase diesel exports to help stabilize global markets. The proposal immediately drew fire from senators in both parties, who questioned whether it was even legal.

Oil markets reflected the confusion. Brent crude started the day higher but soon fell 1.6 percent to $103.01 a barrel, well below its recent peak of $109.97. US crude dropped 1.9 percent to $90.11. The decline came despite ongoing conflict in the Gulf, where strikes on shipping and airports continued to disrupt supply lines. The contradiction was stark: physical disruptions should have pushed prices up, but the possibility of Russian exports flooding the market pushed them down.

Across Asia, the mood was cautious. South Korean stocks fell 2.2 percent. Taiwan's index eased down 0.5 percent. The broadest measure of Asia-Pacific shares, excluding Japan, dipped 0.3 percent. Chinese blue chips managed a small gain of 0.1 percent. Trading was thin—Japanese markets were closed, and the US was observing a partial holiday. The real action would begin Tuesday, when major US banks started reporting third-quarter results.

What made this moment particularly fraught was the earnings picture itself. The S&P 500 was expected to report profit growth of more than 30 percent for the third quarter, according to LSEG IBES data, but nearly all of that gain was concentrated in technology. TSMC, the world's largest maker of advanced artificial intelligence chips, would report Thursday and was likely to post its sixth consecutive quarter of record earnings. Yet beneath the surface, a tension was building. My Bui, an economist at AMP, pointed out that all gains in the S&P 500 since mid-September had come from tech stocks alone. Meanwhile, investors were demanding higher yields to finance the enormous borrowing required for AI infrastructure. The cost of insuring against corporate default had risen sharply to its highest level since the US-Israeli conflict with Iran began. "Overall, wider spreads suggest investors are questioning whether AI revenues can keep pace with rising borrowing costs," Bui said. Corporate bond issuance to fund AI spending, combined with wider high-yield spreads, would raise refinancing costs as debt matured over the coming years.

The debt problem extended beyond corporate balance sheets. A flood of corporate borrowing had pressured sovereign markets, driving US Treasury yields to 24-year highs the previous week and lifting the discount applied to company earnings. This week would bring fresh tests: data on consumer and producer prices, plus retail sales figures. Rising energy costs were expected to push headline inflation up 0.6 percent to an annual rate of 3.7 percent, though core inflation was forecast to rise more modestly at 0.2 percent to 2.5 percent annually. Bruce Kasman, head of global economics at JPMorgan, noted that oil prices remained higher than expected, with shipping costs soaring and product prices even higher. "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.

Markets were pricing in only an 18 percent chance of a Federal Reserve rate increase this month, but that probability jumped to 85 percent for December. Investors were also betting on rate hikes from the European Central Bank, Bank of Japan, and Bank of England before year's end. Currency markets reflected the strain. The euro remained weak at $1.1201, having fallen for five consecutive weeks as concerns about European government deficits weighed on the currency. The dollar index held near 17-month highs at 102.25, though it had stalled against the yen at 158.19 as the threat of Japanese intervention kept speculators at bay. Gold, which carries no interest, rose 0.4 percent to $4,212 an ounce, having bounced more than 1 percent the previous week.

Futures markets in the US and Europe suggested some stabilization ahead. S&P 500 futures edged up 0.3 percent, Nasdaq futures firmed 0.4 percent, and European indices showed modest gains. But the week ahead would test whether those gains could hold as earnings reports arrived and inflation data landed.