Asian shares decline, oil prices rise post fresh US attacks on Iran

Asian shares declined as oil prices rose after the US launched fresh strikes against Iran.

South Korea's Kospi index was down 1.6%, while Japan's Nikkei 225 was down 0.2%.

Brent crude climbed more than 3% to $78.40 a barrel on concerns over potential supply disruptions. Australian bonds dropped with Treasury futures, while the dollar strengthened against most of its Group-of-10 peers. Nasdaq 100 futures retreated 0.5%.

Precious metals slid, with gold losing 1.2% to about $4,070 an ounce, while silver dropped 2%, as higher oil prices and inflation concerns boost the prospect for higher interest rates. Bitcoin fell 0.6% to trade around $63,800.

Renewed tensions in the Middle East come at a pivotal time for markets as investors brace for the start of the earnings season, with Goldman Sachs Group Inc. and JPMorgan Chase & Co. due to report Tuesday. S&P 500 companies are expected to post a 24% jump in second-quarter profits, providing a key test of whether earnings can justify a rally fueled by optimism over artificial intelligence.

Earlier, the US military launched strikes Sunday aimed at further weakening Iran’s ability to strike civilian vessels transiting the Strait of Hormuz, the US Central Command said. The latest action followed Iranian drone and missile attacks on US allies including Kuwait, Jordan and Qatar.

Confusion over the status of the Strait of Hormuz added to the uncertainty, with Iran saying it had closed the waterway, while the US military and maritime authorities said shipping continued through its southern route.

In Europe, Deutsche Bank strategists expect Stoxx 600 firms to report a 12% jump in second-quarter earnings, following a 7% rise in the first quarter. Profits for MSCI Asia Pacific constituents are estimated to rise 39%, up from 6.9% in the previous three months, data compiled by Bloomberg show.

The outlook is being tested by persistent inflation, higher energy prices and growing expectations the Federal Reserve may resume raising interest rates, threatening profit margins. With US and global equities trading near record highs and valuations elevated, investors see little room for disappointing results.

Investors will also closely gauge this week’s US inflation data, after oil’s biggest weekly gain since mid-May revived concerns that higher energy costs could further complicate the disinflation story. Consumer and producer price reports — the last inflation readings before the Fed meets later this month — will offer fresh clues on the path of interest rates.

Traders have ramped up bets on further tightening, with swaps pricing almost 40 basis points of Fed hikes by December, up from about 15 basis points in early June. Economists surveyed by Bloomberg expect both headline and core inflation to have eased slightly in June, though both are forecast to remain well above the Fed’s 2% target.

Fed Chair Kevin Warsh will also make his first congressional appearance since taking the helm after pledging to scale back forward guidance on the rate outlook.

Elsewhere this week, Asian markets will look to China’s second quarter growth data for fresh signs of a slowing economy from sluggish domestic demand. Growth is estimated to have slowed to 4.5% year-on-year, dragging the year-to-date rate to 4.8%.

Traders will also be watching the Bank of Korea’s policy decision on Thursday after Governor Shin Hyun Song warned that inflation, solid economic growth, a weak won and surging home prices all point to tighter monetary policy. All economists in a Bloomberg survey expect the BOK to lift its base rate to 2.75%.

With inputs from Bloomberg