U.S. stock futures slid in Asia on Monday as the military conflict in the Middle East boosted oil and Treasuries, while the sizzling September U.S. jobs report raised the rate stakes for inflation figures later in the week. Holidays in Japan and South Korea made for thin conditions but the initial bid was for bonds and the safe harbours of Japanese yen and gold, with the euro the main loser. "The risk is higher oil prices, a slump in equities, and a surge in volatility supports the dollar and yen, and undermine 'risk' currencies," said analysts at CBA in a note.

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In particular, there was a chance oil supplies from Iran might be disrupted, they added. "Given the tightness already facing physical oil markets in Q4 2023, an immediate reduction in Iran's oil exports risks pushing Brent futures above $US100/bbl in the short term."

Israel pounded the Palestinian enclave of Gaza on Sunday, killing hundreds of people in retaliation for one of the bloodiest attacks in its history when Islamist group Hamas killed 700 Israelis and abducted dozens more.

The danger of disruptions to supply was enough to drive Brent up $4.24 to $88.82 a barrel, while U.S. crude climbed $4.26 to $87.05 per barrel. Gold was also in demand, rising 0.8 per cent to $1,848 an ounce.

In currency markets, the yen was the main gainer though moves were modest overall. The euro eased 0.3 per cent to 157.44 yen, while the dollar dipped 0.1 per cent to 149.14 yen. The euro also eased 0.2 per cent on the dollar to $1.0566.

The cautious mood was a balm for sovereign bonds after recent heavy selling and 10-year Treasury futures rose a sizable 11 ticks. Yields were indicated around 4.75 per cent compared to 4.81 per cent on Friday.

BETTING ON FED EASING

Any sustained rally in oil prices would act as a tax on consumers and add to inflationary pressures, which weighed on equities as S&P 500 futures shed 0.8 per cent and Nasdaq futures lost 0.7 per cent. EUROSTOXX 50 futures slipped 0.4 per cent and FTSE futures 0.1 per cent. While Tokyo was closed, Nikkei futures were trading down 0.8 per cent and near where the cash market ended on Friday.

MSCI's broadest index of Asia-Pacific shares outside Japan went flat, as Chinese blue chips (.CSI300) dropped 1.1 per cent on their return from holidays. The strength of the U.S. jobs report had fed expectations that interest rates would have to stay high for longer, with another major test looming from data on September consumer prices. Median forecasts are for a 0.3 per cent gain in both the headline and core measures, which should see the annual pace of inflation slow a touch.

Minutes of the last Federal Reserve meeting are due this week and should help gauge how serious members were about keeping rates up, or even hiking again. Early Monday, markets seemed to think developments in the Middle East would lean against further Fed hikes, and perhaps hasten a policy easing next year. Fed fund futures now implied an 86 per cent chance rates would stay on hold in November, and had around 75 basis points of cuts priced in for 2024.

China also returns from holiday this week with a deluge of data including consumer and producer inflation, trade, credit and lending growth. The news from the Middle East could sour the start of corporate earnings season with 12 S&P 500 companies reporting this week including JP Morgan, Citi, and Wells Fargo.

Goldman Sachs sees 2 per cent sales growth, with 55 basis points of margin contraction to 11.2 per cent and flat EPS relative to last year. "Near-trend economic growth and moderating inflation pressures will support modest sales growth and slim margin improvement," Goldman analysts aid in a note. "However, substantial margin expansion is unlikely given the 'higher for longer' interest rate regime, resilient wage growth, and AI investments among some tech firms."