Global stock markets are experiencing volatility as rising oil prices, fueled by intensifying conflict in the Gulf, are counteracting a potential rebound in the tech sector. Brent crude surpassed $90 a barrel for the first time in over a month, with U.S. crude rising 2.1% to $84.18, as the U.S. military continued attacks against Iran. This surge in fuel costs has renewed inflation concerns, leading futures markets to price in 29 basis points of Federal Reserve rate hikes by year-end, with some analysts like JPMorgan's Bruce Kasman forecasting a shift toward an earlier Fed hike than expected. The closure of the Strait of Hormuz by Iran is considered a high risk, potentially driving oil prices to $150 a barrel.
The escalating geopolitical tensions coincided with a challenging period for AI and chip stocks, which have seen significant declines. The Philadelphia Semiconductor Index, for instance, shed 10% last week, now down 20% from its June record high. This scenario sets high stakes for a packed week of earnings reports from major tech companies like Alphabet, Intel, and Tesla. Analysts, including BofA's Savita Subramanian, remain optimistic about overall earnings, projecting a 5% beat versus consensus, driven largely by the tech sector, with semiconductors expected to see a 130% year-on-year growth.
Asian markets showed mixed reactions, with South Korea's chip-heavy market losing 4.1% after a nearly 9% dive last week, and Japan's Nikkei shedding 6.4% in a tech-led rout. Conversely, Chinese blue chips rose 1.4%. The impact of rising oil prices is also a concern for the European Central Bank, which is expected to hold rates at 2.25% at its upcoming meeting, though markets are pricing in a probable rise at its September meeting and rates of 2.75% early next year. Yields on 30-year Treasuries climbed above 5.0%, drawing funds away from equities and impacting corporate earnings valuations. The dollar remained steady against the yen, while gold prices, considered non-interest-paying, fell 0.1% to $4,013 an ounce.
