Global shares and bonds experienced a downturn on Monday as escalating conflict in the Gulf region propelled Brent crude prices above $90 a barrel, reviving inflation concerns. This geopolitical tension preceded a critical week for major technology earnings reports. Brent crude surged by 2.4% to $90.18 a barrel, marking its highest level in over a month, while U.S. crude similarly rose by 2.1% to $84.18. The increase in oil prices followed a ninth consecutive day of U.S. military strikes against Iran and retaliatory actions across the region, with reports of limited ship transits through the Strait of Hormuz and Tehran claiming hits on two vessels. Shane Oliver, head of investment strategy at AMP, warned that a prolonged closure of the strait and further escalation could push oil toward $150 a barrel, although this is not his base case.
The rising fuel costs have intensified worries about persistent inflation, despite last week's unexpectedly soft U.S. consumer price data. Futures markets are now factoring in 29 basis points of Federal Reserve rate increases by year-end, with a 60% probability of a rate hike as early as September. These expectations for tighter monetary policy pushed 30-year U.S. Treasury yields above 5%, making bonds potentially more attractive than equities and raising the bar for corporate earnings to justify high valuations. JPMorgan Chief Economist Bruce Kasman noted that while their forecast is for a gradual Fed hike in 2027, the balance of risks is shifting toward an earlier move.
The volatility in global markets also impacted technology and artificial intelligence stocks. The Philadelphia Semiconductor Index, a key indicator for the chip sector, shed 10% last week and is now 20% down from its June record high, reflecting investor questions about sky-high valuations. Despite these concerns, Bank of America analyst Savita Subramanian remains optimistic about the earnings outlook, projecting a 5% beat against consensus, equating to 28% growth, with technology expected to drive over half of this growth and semiconductor earnings anticipated to rise around 130% year-on-year. Investors will closely watch upcoming earnings from major AI hyperscalers, starting with Alphabet Inc., to gauge sustained investment in AI infrastructure.
