Asia shares wary, oil volatile as war drags on

Asian markets are cautious as hostilities in the Gulf keep oil prices high, complicating the inflation outlook that will cause most central banks to pause policy meetings this week.

In a possible silver lining, the Wall Street Journal reported that the Trump administration plans to announce as early as this week that several countries have agreed to form a coalition to escort ships through the Strait of Hormuz.

President Donald Trump told the Financial Times that it would be very bad for the future of NATO if allies did not help.

European Union foreign ministers will discuss supporting a small naval mission in the Middle East on Monday, but any operation in the Bosphorus will be fraught with risks.

Oil markets remained cautious, with Brent rising 0.1 per cent to US$103.27 ($A147.77) per barrel on Monday. US crude oil fell 0.7 percent to US$97.99 ($A140.22).

Policymakers in the US, UK, Europe, Japan, Australia, Canada, Switzerland and Sweden are holding their first full meetings since the start of the war, and energy prices are looming in all of them.

“Central bank forecasts will immediately trend toward higher inflation and lower growth,” said JPMorgan chief economist Bruce ‌Kasman.

“Consistent with this view, we have withdrawn or removed actions expected to be taken in March and April for most central banks.”

“Developments on the ground point to the potential for further price increases and the possibility that the risk premium will remain high.”

While Japan’s Nikkei index lost 0.1 percent of its value, South Korean stock markets gained 0.9 percent after losing value last week. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 percent.

Regionally, focus will be on Chinese economic data to be released on Monday; While retail sales rebounded in February after a dismal start to the year, growth in industrial production is expected to remain around five per cent.

Senior US and Chinese officials are also meeting in Paris to discuss potential deals in agriculture, critical minerals and trade, which US President Donald Trump and Chinese President Xi Jinping will discuss in Beijing.

S&P 500 futures and Nasdaq futures jumped 0.4 percent in choppy trading. As earnings season draws to a close, AI concerns will be at the forefront as Nvidia hosts the GTC conference in Silicon Valley this week, where it is expected to showcase the latest advancements in chips and AI infrastructure.

The looming energy shock, combined with the pressure on fiscal budgets from higher defense spending, has caused bond yields to experience double-digit increases globally last week.

Ten-year Treasury yields have risen 32 basis points since the start of the war to 4.26 percent, while futures have sharply narrowed the scope for future rate cuts.

The Federal Reserve is expected to remain steady on Wednesday, with the odds of an expansion by June falling to just 26 percent from 69 percent a month ago.

Investors’ attention will focus on the tone of the statement and media conference and whether policymakers’ median “dot plot” forecasts rule out further easing for this year.

A cautious and stable outcome is expected at all other central bank meetings, except for the Reserve Bank of Australia, which is seen as likely to raise its cash rate by a quarter point to 4.1 per cent as it battles resurgent inflation at home.

Increased volatility in markets tends to benefit the US dollar as a store of liquidity.

The United States is also a net exporter of energy, which gives it a relative advantage over much of Europe and Asia, which are net importers.

The dollar traded slightly lower early Monday, partly in response to a report that ships could pass through the Strait of Hormuz.

The dollar fell to 159.47 yen, just off a 20-month high of 159.75, as investors remained cautious about the possibility that a break through 160.00 might trigger warnings of new intervention from Japan.

The euro remains stuck at a seven-month low at $1.1440, which threatens to breach the main chart support at $1.1392, which could lead to a pullback towards $1.1065.

In commodity markets, gold, which has so far received scant support as a safe haven or hedge against inflation risks, was little changed at $5,022 ($7,186) an ounce.