Asian stocks opened lower with Brent crude climbing above $90 a barrel, reviving inflation fears and putting pressure on technology earnings. The 30-year Treasury yield rose above 5%, increasing the appeal of bonds and raising the discount rate for future corporate profits. While Bank of America strategist Savita Subramanian anticipates earnings to beat consensus by about 5%, with tech profit growth near 28% and semiconductor earnings roughly 130% higher, recent reactions to strong chip results suggest meeting estimates might no longer suffice. Last week's softer US consumer and producer inflation initially eased concerns of an immediate Federal Reserve move, but the oil shock has shifted markets towards a more hawkish view, with futures implying about 29 basis points of tightening by December and a roughly 60% chance of a September rate hike.
The oil surge comes as investors reassess the AI trade, impacting the Philadelphia Semiconductor Index which dropped 10% last week and is now about 20% below its June peak. Concerns are exacerbated by companies like Moonshot AI launching cheaper models, challenging the assumptions behind the industry's capital-intensive AI infrastructure buildout. Attention is now focused on upcoming earnings reports from Alphabet and Tesla on Wednesday, followed by Intel on Thursday, where investors will scrutinize data-center spending, AI revenue, and management's justifications for further infrastructure investment. MSCI’s Asia-Pacific gauge outside Japan slipped 0.3%, while South Korea’s chip-heavy Kospi fell 4.2% after a nearly 9% loss last week, though Chinese blue chips gained 1.4%.
Escalating US-Iran conflict is the primary driver of the oil price increase, with Brent crude up about 3% to over $90 and West Texas Intermediate approaching $85. This follows a ninth consecutive night of US strikes against Iran and retaliatory actions. Shipping through the Strait of Hormuz has significantly slowed, with only four vessels recorded crossing on Sunday, half of Saturday's total. While the market initially prices disruption rather than a complete loss of Gulf supply, strategists like Shane Oliver from AMP warn that a prolonged closure could push oil towards $150, creating a global inflation shock. The European Central Bank is expected to keep its deposit rate at 2.25% on Thursday, but renewed energy inflation may strengthen the case for another increase later in the year.
