SYDNEY: Asian markets were in a cautious mood on Monday as hostilities in the Gulf lifted oil prices, complicating the outlook for inflation that should prompt most central banks to pause at policy meetings this week, barring a possible hike.

In a possible sign of hope, the Wall Street Journal reported that the Trump administration plans to announce earlier this week that multiple countries have agreed to form a coalition to escort ships through the Strait of Hormuz.

President Donald Trump told the Financial Times that it would be very bad for the future of NATO if allies did not help.

European Union foreign ministers will discuss boosting a small naval mission in the Middle East on Monday, although any operation in the strait would be fraught with risk.

Oil markets were cautious as Brent rose 0.1% to $103.27 a barrel, while US crude fell 0.7% to $97.99.

Policymakers in the US, UK, Europe, Japan, Australia, Canada, Switzerland and Sweden hold their first plenary meetings since the start of the war, with energy prices rising above all of them.

“Central bank forecasts will immediately be biased toward higher inflation and lower growth,” said Bruce Kasman, chief economist at JPMorgan. “Consistent with this view, we have pushed back or eliminated measures for most central banks that were expected to move in March and April.”

“Developments on the ground highlight the possibility of further price increases and risk premiums likely to remain elevated.”

Japan’s Nikkei fell 0.1%, while South Korean shares added 0.9% after both lost ground last week. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1%.

Regionally, the focus will be on Chinese economic data out on Monday, which will show retail sales picking up in February after a disappointing start to the year, while industrial production growth is forecast to hover around 5%.

US and Chinese officials are also meeting in Paris to discuss possible deals in agriculture, critical minerals and managed trade for US President Donald Trump and Chinese President Xi Jinping to consider in Beijing.

All central banks

S&P 500 futures and Nasdaq futures rose 0.4% in early trading. While earnings season is over, concerns about AI will be front and center as Nvidia hosts its GTC conference in Silicon Valley this week, where it is expected to show off the latest advances in chips and AI infrastructure.

The coming energy shock, coupled with pressure on fiscal budgets from higher defense spending, saw bond yields rise by double-digits globally last week.

The ten-year Treasury yield was at 4.26%, up 32 basis points since the war began, while futures sharply increased the chance of a future rate cut.

The Federal Reserve is believed to be on hold on Wednesday and the odds of easing by June have fallen to just 26%, from 69% a month earlier.

Investors will focus on the tone of the statement and media conference, and whether policymakers’ moderate “dot plot” projections for further easing for this year lead to further easing.

All other central bank meetings are expected to have a cautiously steady outcome, barring the Reserve Bank of Australia which is seen as likely to raise its cash rate by a quarter point to 4.1% as it battles domestic inflation.

The increasing volatility in the markets has benefited the US dollar as a reservoir of liquidity. The United States is also a net energy exporter, giving it a relative advantage over Europe and much of Asia, which are net importers.

The dollar was trading a touch lower early Monday, partly in reaction to reports that shipping may be escorted through the Strait of Hormuz.

The dollar eased to 159.47 yen, off a 20-month peak of 159.75, with investors wary of a break of 160.00 triggering further warnings of intervention from Japan.

The euro was stuck near a seven-month low at $1.1440, threatening a breach of key chart support at $1.1392 that could lead to a retreat towards $1.1065.

In commodity markets, gold was little changed at $5,022 an ounce, having so far found little support as a safe haven or hedge against inflation risks. (Reporting by Van Cole; Editing by Mr. Navaratnam)