Asia Seems to Have Weathered Energy Price Shock Well — Market Talk

0904 GMT - Asia appears to have withstood the global energy price shock reasonably well, Capital Economics' Gareth Leather says in a webinar. The region looked vulnerable initially when the Iran war broke out, due to its heavy reliance on energy supplies from the Middle East. However, many Asian governments provided fiscal support through subsidies and price controls to mitigate the impact of rising energy prices. Consumers and businesses haven't really borne the brunt of higher energy prices; instead, governments' fiscal positions have been hit, he says. (amanda.lee@wsj.com)

0859 GMT - Sterling rises to a 10-month high against the euro, helped by easing concerns about potential fiscal policy under Andy Burnham, the frontrunner to become the U.K.'s next prime minister. A weaker euro due to concerns about a fragile eurozone economy also help sterling. U.K. fiscal concerns remain, however. "We have been surprised by the lack of reaction in U.K. assets to the growing likelihood that Energy Secretary Ed Miliband, rather than centrist Wes Streeting, lands the role as the next Chancellor of the Exchequer," Ebury strategist Matthew Ryan says in a note. Still, Burnham has said he will stick the the U.K.'s fiscal rules. The euro falls to a low of 0.8598 pounds. Against a stronger dollar, sterling falls 0.1% to $1.3250. (renae.dyer@wsj.com)

0849 GMT - The U.K. government may have to increase taxes or reduce spending in some departments to finance defense spending, RBC Capital Markets strategists say in a note. The government published the Defence Investment Plan on Tuesday, outlining 10.3 billion pounds ($13.6 billion) of funding to be raised by "reallocating budget from across government departments". The plan noted that a further 4.7 billion pounds will be confirmed at the budget statement in autumn. (miriam.mukuru@wsj.com)

0845 GMT - The European Central Bank is likely to wait for more data, such as fresh macroeconomic forecasts at its September meeting, before deciding its next interest-rate move, its vice-president Boris Vujcic says. "We will have to wait for the data to come in until the July meeting, and then in September we have new projections, and then we will decide, depending on further data that will come in," he told CNBC in an interview on the sidelines of the ECB's conference in Sintra, Portugal. The bank still won't pre-commit to a rate path, Vujcic says. So far, inflation data for June has provided no surprises, he says. The ECB last raised its key rate at its June meeting by a quarter point. (edward.frankl@wsj.com)

0842 GMT - The euro is at risk of further falls if Wednesday's eurozone inflation data are lower than expected and European Central Bank President Christine Lagarde dampens expectations for further interest rate rises, Monex Europe analysts say. The inflation data are likely to miss expectations given softer-than-expected prints from Germany, France and Italy, they say in a note. This could reinforce the case that the ECB is "one and done" after last month's rate increase, they say. Largarde could also validate this argument at the ECB's forum in Sintra, Portugal Wednesday. The euro falls 0.2% to $1.1400. (renae.dyer@wsj.com)

0839 GMT - The August 2031 index-linked gilt trades at an expensive valuation, RBC Capital Markets strategists say in a note. The index-linked gilt is set to be auctioned by the Debt Management Office at 0900 GMT and this is likely the bond's final tap, they say. The strategists have a 'sell' bias on the August 2031 index-linked gilt, which is due to fall below the five-year maturity segment in August. (miriam.mukuru@wsj.com)

0837 GMT - Oil price moves will remain the key factor driving equity, currency and fixed-income markets as the new quarter gets underway, First Abu Dhabi Bank's Simon Ballard says in a note. "Sentiment is clearly being buoyed by--but is also highly susceptible to the continuation of--assumed progress being made in U.S.-Iran peace talks and recovery in Strait of Hormuz shipping flows," the chief economist says. The recent drop in oil prices has relieved inflationary pressure globally and lifted European and select Asian equities. However, First Abu Dhabi Bank expects central banks to retain a bias towards raising rates, while Gulf Arabic markets will confront lower crude revenues, Ballard says. This is certainly no time for complacency, he says. (emese.bartha@wsj.com)

0828 GMT - Singapore's headline inflation is likely to cool this year, CGS International economist Mohamed Afham Zulghafir says in a report. The recent decline in oil prices should help reduce cost pressures across transport, utilities and other energy-related components. "We think the moderation in inflation will be gradual rather than immediate," the economist says. Headline inflation could remain relatively firm in the near term due to lingering supply-side constraints, such as potential disruptions to key shipping routes. CGS International lowers its 2026 headline inflation forecast to 2.0% from 2.9% previously.(amanda.lee@wsj.com)

0811 GMT - Japanese authorities could refrain from interventions to shore up the yen as the currency's decline has been gradual, MUFG Bank's Derek Halpenny says in a note. "The current pace of yen selling appears acceptable and if maintained could see the Ministry of Finance remain on the sidelines." The MoF's rhetoric on possible further interventions has subsided. One-month implied volatility in the dollar-yen, a measure of expected price swings in the options market, is relatively low while Japanese government bonds are stable and equities are at record highs, he says. Hence, the MoF could allow a slow grind higher in dollar-yen, he says. The dollar rises 0.1% to 162.62 yen after reaching a 40-year high of 162.83 earlier, LSEG data show. (renae.dyer@wsj.com)

0810 GMT - U.K. government bonds, or gilts, remain sensitive to inflation risk from near-term government spending initiatives, ING's Michiel Tukker says in a note. Gilt investors are more concerned about the U.K. inflation outlook than sovereign risk, Tukker says. More fiscal expansion from the government in the near term could again delay the prospect of inflation reaching the target of 2%, he says. The U.K. government has set out plans to increase defense spending. Andy Burnham--the likely candidate to replace current Prime Minister Keir Starmer--is also expected to favor additional government spending. Ten-year gilt yields rise 5 basis points to last trade at 4.813%, Tradeweb data show. (miriam.mukuru@wsj.com)

0751 GMT - The softening of the impact of rising energy prices on inflation in the eurozone means the European Central Bank shouldn't raise its key interest rate again this month, rate setter Martins Kazaks says. "I don't think that we are in a situation, at least from the current perspective, in need to act urgently and have repetitive hikes," he said in an interview with CNBC at the ECB's forum in Sintra, Portugal. "We have to remain vigilant, but with the shock weakening, I think we can be more gradual in our response," says Kazaks, who is also Latvia's central-bank governor. The ECB in June increased its key rate by a quarter-point to 2.25%. (edward.frankl@wsj.com)

0742 GMT - The dollar should remain firm if Federal Reserve Chair Kevin Warsh focuses on price stability when he speaks at the European Central Bank's forum in Sintra, Portugal, at 1300 GMT, ING's Chris Turner says in a note. In his first Fed meeting as chair in June he emphasized the need to bring inflation back to the 2% target. Since then, data have showed core PCE inflation at 3.4% and another bumper jobs report. A pushback against market pricing for rate rises "would be a big surprise" and instead his comments present "upside risks" to the dollar, Turner says. The DXY dollar index rises 0.2% to 101.357 and ING sees it potentially returning to 101.700-101.800 in reaction to Warsh's comments.(renae.dyer@wsj.com)