Morning Bid: $100 Brent in sight, yen defies gravity

A look at the day ahead in European and global markets from Kevin Buckland

Brent crude has climbed to the cusp of $100 a barrel, a level last seen in late July, as fresh fighting in the Middle East fuels fears the conflict could spiral into a broader regional war.

That backdrop is keeping a lid on risk appetite across Asian equity markets, at least for stocks that aren't part of the AI trade.

The yen is refusing to follow the usual script. Higher oil prices would normally weigh on Japan's currency given the country's heavy dependence on imported energy, much of it from the Middle East. Instead, it continues its push to seven-month highs versus the dollar as a once-crowded short trade gets cleaned out by bets on a faster pace of Bank of Japan rate hikes.

Other currencies are subdued though, despite a blockbuster fortnight featuring policy decisions from the European Central Bank, Federal Reserve, Bank of England and BOJ.

Meanwhile, the geopolitical backdrop is only getting darker, with Iran targeting a U.S. base in Jordan in retaliation for U.S. strikes on its oil tankers, while Iranian-backed Houthis struck several Saudi cities.

A move back above $100 a barrel for Brent crude would surely deal a psychological blow to markets that have spent most of this year agonizing over global inflation risks.

Even the gravity-defying AI trade showed some cracks with a sharp correction in July, although some of the exuberance has returned to the market of late.

SK Hynix is up over 4% today, helping lift South Korea's KOSPI to a more than 2% advance.

Japanese cable makers Fujikura and Furukawa Electric vaulted higher after a multi-billion-dollar deal between Verizon and Corning for high-density optical fiber reignited excitement about data centre plays.

That helped keep the Nikkei in positive territory despite a soaring yen, which typically hurts Japan's export-heavy stocks.

The yen is pushing back towards Tuesday's high of 152.89 per dollar.

What began as a rally driven by hawkish BOJ signals gathered momentum after comments from U.S. Treasury Secretary Scott Bessent and speculation that Japanese investors could repatriate overseas assets into domestic bonds.

Market players said the rally became self-reinforcing as stop loss orders were triggered, unleashing a wave of short-covering that was amplified by algorithmic trading.

The next level to watch is the high for the year at 152, analysts say. Some suggest the yen has overshot, and fundamentals may pull it back towards 155 heading into the BOJ meeting on Thursday and Friday of next week. While a quarter-point rate hike is almost fully priced in, guidance on the pace of further tightening will be crucial.

The ECB is expected to raise rates on Thursday, just ahead of potentially market-moving U.S. inflation data on Friday. Next week, the Fed decision comes first, with markets split on whether policymakers hike or stand pat, while the BoE is expected to leave rates unchanged a day later.

Key developments that could influence markets this week:

-ECB policy decision on Thursday

-US PPI on Thursday, CPI on Friday

-UK GDP on Friday

(Reporting by Kevin BucklandEditing by Shri Navaratnam)