Asian markets regain balance amid anticipation of technology and interest results

Asian stock markets began Monday's trading on a stable, upward trend, following a turbulent week that witnessed sharp declines in technology stocks, with mounting doubts about the profitability of investments in artificial intelligence and the demand for computing chips and the infrastructure needed for this technology. On the other hand, the dollar maintained its strength, supported by increasing expectations of raising US interest rates in December, after data showed the strength of the labor market.

The broader MSCI index of Asia-Pacific stocks, excluding Japan, rose by 0.8 percent, after falling 4.6 percent last week. Japan's Nikkei index rose 2.5 percent, while Korean stocks recorded limited gains.

In Taiwan, the benchmark index rose by about 2.5 percent, after last week recording its largest weekly loss in two decades, amid fears of a decline in expected returns on investments in artificial intelligence, and a slowdown in demand for related infrastructure. These fears turned into a sharp wave of selling following the Democrats’ victory in the US midterm elections.

US stock futures also recorded a slight rise, after Wall Street ended Friday trading with gains, in a rebound that followed widespread selling of shares of companies related to artificial intelligence, and contributed to allaying some investors’ fears.

Global markets have faced pressure over the past weeks, with investment momentum in artificial intelligence declining due to rising interest rates, before the results of the US midterm elections added new concerns related to the possibilities of tightening regulatory restrictions on the sector and data centers.

This week, investors' attention is turning to the business results of a number of technology companies, including CoreWave, Applied Materials, and Cisco Systems, to test the ability of these companies to achieve returns that keep pace with huge spending on building artificial intelligence infrastructure.

Internal investigations led by Nvidia into the relationship of its CEO, Jensen Huang, with a person suspected of spying for China, may also spark further fluctuations in the sector’s shares.

Kyle Rodda, senior financial markets analyst at Capital.com, said that the markets “are not yet out of the risk zone,” adding that the results of the midterm elections and the regulatory risks they resulted from, in addition to a business results season that fell below expectations for major technology companies, kept the markets’ momentum inclined to decline.

Oil is calming and the dollar is strengthening

In energy markets, Brent crude fell to $97.49 a barrel, after US President Donald Trump said on Sunday that the possibility of issuing orders to launch new attacks on Iran is very unlikely, as long as the talks aimed at ending the conflict are making progress.

On the other hand, US jobs data reinforced investors' bets on raising interest rates. The data showed that US employers added 165,000 jobs during October, more than double expectations, which supported the opinion that the Federal Reserve may be heading to increase interest rates in December.

Markets are awaiting the release of US consumer price index data on Tuesday, as high numbers may reinforce expectations of an interest rate hike next month. The odds of an interest rate increase of at least 25 basis points at the December meeting have risen to about 80 percent, according to the CME Group’s Fed Watch tool.

Statements from US Central Bank officials also supported these expectations. New York Federal Reserve Bank President John Williams said that US economic growth has shown a remarkable ability to withstand successive shocks, but he stressed that inflation is still high, and that returning it to the 2 percent level remains essential.

These developments helped the dollar record its largest daily gains in five months. The dollar index, which measures the performance of the US currency against a basket of major currencies, settled at 102.2 points.

In the currency market, the euro stabilized at $1.1148, while the Japanese yen rose 0.2 percent to 158.215 yen to the dollar.

As for cryptocurrencies, Bitcoin fell by more than 2 percent to $73,708, and Ethereum fell by about 5 percent to $2,223, recording its lowest levels in more than two months, amid investors’ fears that the Democrats’ control of the US Congress will lead to tightening regulatory oversight of the cryptocurrency sector.

Gold prices rose by more than 1 percent during trading on Monday, supported by a decline in oil prices and a decline in fears of inflationary pressures, while investors await US inflation data and new signals regarding the course of the Federal Reserve’s monetary policy.

Gold rose in spot transactions by 1.3 percent to about $4,122 per ounce, according to morning trading data, after achieving gains of about 5 percent over the past week. US gold futures for December delivery also rose by about 1.6 percent to $4,139 per ounce, according to Reuters data.

The rise of the precious metal came with a decline in oil prices, after US President Donald Trump said that the possibility of issuing orders to launch new attacks on Iran is very unlikely, in light of the continuing talks aimed at ending the conflict. These statements contributed to allaying fears of possible disruptions to energy supplies.

The decline in oil prices reduces inflationary pressures, which may reduce expectations that interest rates will remain at high levels for a longer period, which supports gold, which does not generate a return for its holders, and reduces the opportunity cost of holding it.

Tim Waterer, chief market analyst at KCM Trade, said that Trump's more conciliatory tone toward Iran helps limit the rise in oil prices, which eases some of the inflationary pressures that were negatively affecting the yellow metal, in addition to a limited decline in the dollar.

The US dollar fell slightly, which made gold denominated in the US currency less expensive for holders of other currencies, and increased demand for it.

But US monetary policy expectations still constitute a potential pressure on the precious metal. Labor market data showed US job growth accelerating in October, with the unemployment rate falling to 4.1 percent, which strengthened expectations for the continued strength of the labor market and kept the possibility of raising interest rates in December on the table.

According to the CME Group's Fed Watch tool, markets are currently pricing in a 79 percent probability that the Federal Reserve will raise interest rates in December, compared to about 71 percent before the release of the jobs data.

Investors' attention is now directed to the US consumer price index scheduled for release on Tuesday, and the producer price index expected on Friday, in search of additional indicators regarding the trend of inflation and the upcoming decisions of the US Central Bank.

Waterer warned that the release of higher-than-expected inflation data may support the dollar and raise the possibility of an interest rate increase in December, which may put pressure on gold prices again.

In other precious metals markets, silver rose in spot transactions by 2.4 percent to $53.15 per ounce, platinum rose 1.6 percent to $1,556.14, and palladium rose 2.1 percent to $1,044.28.

Oil prices fell at the beginning of trading on Monday, after US President Donald Trump said that the possibility of issuing orders to launch new attacks on Iran was very unlikely, at a time when negotiations aimed at ending the conflict had made progress, despite both sides announcing attacks on ships in or near the Strait of Hormuz.

Brent crude futures fell 84 cents, or 0.85 percent, to $97.48 per barrel by 01:38 GMT, while US West Texas Intermediate crude fell 32 cents, or 0.35 percent, to $90.51.

These movements reflected limited gains recorded by prices upon settlement of trading on Friday, after investors evaluated the possibilities of the United States launching new strikes on Iran. Brent crude fell by about 17 percent during the past week, in the largest weekly decline since the beginning of the “Covid-19” pandemic, and the largest decline in absolute value since the start of the London Stock Exchange Group’s data in 1988.

“It depends on whether they sign a very strong agreement,” Trump said in a phone interview with CNN in response to a question about the possibility of renewed attacks, adding, “The answer is that it will most likely not be necessary.”

Trump had hinted at the possibility of resuming attacks on Iran after the US midterm elections last week, but no indications have yet emerged of the implementation of a large-scale US military operation. On the other hand, Iran said it would respond by targeting American and Israeli sites.

Tim Waterer, senior analyst at KCM Trade, described Trump's statements as "more balanced," but pointed out that the markets are still waiting to find out whether the midterm elections have brought about a sustainable shift in Trump's approach to the conflict, or whether the matter is nothing more than a temporary change in the tone of his statements.

In a development related to market fundamentals, the JPMorgan group said in a report issued on Friday that the oil market is once again heading toward recording a surplus in supply, with the recovery of oil flows from the Middle East, increased production in other countries, and weak demand, which are factors that pushed global supplies to exceed consumption. The group estimated the surplus at about 1.1 million barrels per day in September, likely to expand to 1.4 million barrels per day in October.

In Iraq, Foreign Minister Fuad Hussein said that Baghdad had reached an understanding with the United States that allows Iraqi oil exports to pass through the Strait of Hormuz, through a navigation route near the Sultanate of Oman. He added that Iraq's losses resulting from the war with Iran and the disturbances affecting oil exports amounted to $60 billion.