Asian stocks opened lower on Monday as Brent crude oil prices surged above $90 a barrel, rekindling inflation concerns just as investors braced for a significant week of technology company earnings reports. The climb in oil prices followed the U.S. beginning a ninth consecutive night of strikes against Iran, with Tehran retaliating, and a sharp slowdown in shipping through the Strait of Hormuz, with only four vessels recorded crossing on Sunday, half of the previous day's total. This oil shock has led to increased market expectations for a more hawkish Federal Reserve, with futures implying about 29 basis points of tightening by December and a roughly 60% chance of a September interest rate hike.
Amidst these macro pressures, the technology sector faces a challenging environment. The Philadelphia Semiconductor Index dropped 10% last week and is now approximately 20% below its June peak, reflecting concerns over stretched valuations. Bank of America strategist Savita Subramanian anticipates earnings to beat consensus by about 5%, with technology profit growth near 28% and semiconductor earnings rising approximately 130%. However, recent market reactions suggest that simply meeting estimates may no longer be sufficient to drive stock appreciation. The 30-year Treasury yield also rose above 5%, making bonds more attractive and increasing the discount rate applied to future corporate profits.
Investors are now closely monitoring upcoming earnings reports from Alphabet and Tesla on Wednesday, followed by Intel on Thursday. Key areas of focus will be data-center spending, AI revenue, and management's justification for further infrastructure investment. The market is questioning whether strong technology earnings can overcome the combined impact of rising oil prices, higher inflation, increasing bond yields, and a greater cost of capital. Moonshot AI's launch of its open-weight Kimi K3 model has also introduced concerns about cheaper AI models challenging the capital-intensive buildout assumptions of the industry.
Overall, MSCI's Asia-Pacific gauge outside Japan slipped 0.3%, while South Korea's chip-heavy Kospi fell another 4.2% after a nearly 9% drop last week. Chinese blue chips provided a counter-trend with a 1.4% gain. Despite the immediate market response, some analysts note that the market is currently pricing in disruption rather than a complete loss of Gulf supply. However, AMP strategist Shane Oliver warns that a prolonged closure of the Strait of Hormuz could lead to oil prices approaching $150, though he views this as a tail risk rather than a base case scenario. The European Central Bank is expected to maintain its deposit rate at 2.25% on Thursday, with renewed energy inflation potentially strengthening the case for a future increase.
