Shares supported as oil retreats; focus turns to US CPI, earnings

By Danilo Masoni and Wayne Cole

MILAN/SYDNEY, Oct 12 (Reuters) - European shares and US futures edged higher on Monday after a choppy session in Asia as oil prices retreated, while investors looked ahead to key US inflation data and the beginning of the earnings season.

Oil prices eased despite strikes on shipping and airports in the Gulf after US President Donald Trump unveiled an energy-related ceasefire between Ukraine and Russia and proposed that Moscow increase diesel exports. Details, however, remained unclear and the plan faced political opposition in Washington.

Brent started higher in Asia before turning lower and was recently down 0.3% at $104.37 a barrel, below a recent top of $109.97, while US crude futures lost 0.6% to $91.33. [O/R]

Deutsche Bank strategist Jim Reid said the outlook for oil remained uncertain.

"So even if a Russia/Ukraine ceasefire and Russian diesel waiver ease pressure on refined products, attacks on Riyadh and fighting around Bab el-Mandeb leave an upside tail risk for oil and shipping costs, alongside continuing Strait of Hormuz disruption," he said.

Lower crude prices helped support sentiment in Europe, where the region-wide STOXX 600 rose 0.6% at 0742 GMT, aided by gains from automakers after China and the European Union reached agreements on hybrid vehicle exports.

MSCI's broadest index of Asia-Pacific shares excluding Japan was down 0.5% and Chinese blue chips dipped 0.7%. South Korean stocks fell 3.6% and Taiwanese shares were unchanged.

On Wall Street, S&P 500 and Nasdaq futures rose around 0.3%.

Activity was subdued with Japan closed for a holiday and the US Treasury market shut for Columbus Day, leaving trading thin ahead of earnings season, with major US banks including JPMorgan and Goldman Sachs reporting on Tuesday, followed by Bank of America on Wednesday.

TSMC, the world's largest manufacturer of advanced AI chips, will likely report a sixth consecutive quarter of record earnings on Thursday. Earnings from chip-equipment maker ASML are due on Wednesday.

S&P 500 earnings are expected to jump more than 30% in the third quarter, according to LSEG IBES, though the bulk of that comes from the tech sector. STOXX earnings are expected to increase 21%, or 9.7% excluding the energy sector.

Treasury yields hit 24-year highs this month as elevated energy costs fuelled concerns that inflation could stay elevated, keeping policymakers hawkish and pressuring equity valuations.

On Monday, euro area benchmark Bund yields edged lower and French and Italian debt risk premiums fell slightly. [GVD/EUR]

US CPI TO HEAT UP, BUT CORE COOLER

The market faces fresh challenges this week from US data on consumer and producer prices and retail sales. Rising energy costs are expected to lift CPI by a hefty 0.6% to an annual 3.7%, though the core is seen cooler at 0.2% and 2.5%.

"Oil prices remain higher than we had assumed as shipping costs have soared and product prices are even higher," said Bruce Kasman, head of global economics at JPMorgan.

"The signals on inflation point to a sharp rebound in headline inflation that will squeeze purchasing power and a firming in core inflation that will keep central banks focused on near-term hikes."

Markets imply only an 18% chance of a rate rise from the Federal Reserve this month, rising to an 85% chance of a hike in December. Investors are also wagering on hikes in the EU, Japan and Britain before the end of the year.

In currency markets, the euro remained on the defensive at $1.1205, having fallen for five weeks straight amid concerns about government deficits in Europe.

The dollar index held near 17-month highs at 102.21, but it has stalled against the yen at 158.44, as the threat of Japanese intervention deters speculators for now.

In commodity markets, non-interest-bearing gold rose 0.1% to $4,198 an ounce, having managed to bounce more than 1% last week. [GOL/]

(Reporting by Danilo Masoni and Wayne Cole; Editing by Sam Holmes and Thomas Derpinghaus)