MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.2%

Asian share markets dropped on Monday as caution took hold ahead of a crucial earnings season for the AI sector, while the potential for increased supply weighed on oil prices and promised relief from inflationary pressures.

OPEC+ also agreed a further increase in output targets by 188,000 barrels per day from August, on top of similar increases for June and July. As a result, Brent slid 0.2% to near four-month lows at $71.95 a barrel and US crude was flat at $68.72.

Minutes of the Fed’s last meeting are due on Wednesday and should offer colour on the hawkish turn by some board members, though that preceded the recent slide in oil.

Even if you thought there was a risk the Fed might move soon, I think we’re safe at least for another month, said Richard Yetsenga, head of research at ANZ.

Our view overall still is the Fed won’t do anything, but clearly we’ve been above target on the Fed’s preferred inflation measure for five years, he added. There is some risk that the Fed just runs out of patience.

The diminished risk of a hike this month should allow investors to focus on the looming earnings season, where the AI boom is set to deliver bumper tech profits.

The world’s largest memory chipmaker by sales is likely to flag an operating profit of 86 trillion won ($56.35 billion) for the April to June quarter, according to an LSEG SmartEstimate.

South Korea’s strong market cooled a little last week but is still up 90% for the year so far as AI demand and tight supplies boost chip prices. The index eased 0.8% on Monday, while Nikkei dropped 0.4%.

MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.2%, while Chinese blue chips were little changed.

New Zealand’s central bank is due to meet on Wednesday and markets are wagering it will raise its 2.25% cash rate by a quarter point, the first hike since mid-2023.

Policy makers have foreshadowed a tightening for some time, though again that was before the tumble in oil prices and there has to be a chance it will surprise by holding rates steady.

Even if the Fed stays on hold, a still-stretched manufacturing sector, the threat of higher food costs thanks to El Niño, and weaker local currencies are keeping monetary officials on the defensive, argued Frederic Neumann, chief Asia economist at HSBC.

He expects hikes in New Zealand and South Korea this month, with Indonesia in play as well.