Asian equities experienced a rebound, particularly in the semiconductor sector, after a turbulent period. South Korea's KOSPI, which slid almost 9% last week, continued to decline another 4.2% on Monday, reflecting ongoing pressure on chip stocks and the unwinding of leveraged retail positions. However, the Philadelphia Semiconductor Index, after falling 10% last week and more than 20% from its June record high, rose 0.6% on Monday, indicating a potential recovery. Japan's Nikkei, closed for a holiday on Monday, had shed 6.4% last week due to a tech-led rout.
Oil prices, which had climbed above $90 a barrel for Brent crude due to escalating Middle East tensions, showed signs of dipping. Brent crude futures, after rising 2.6% to $90.40 a barrel on Monday, settled at $89.22, while U.S. West Texas Intermediate gained 2.3% to $84.39, settling at $83.23. The recent surge in oil prices had rekindled inflation worries, prompting futures markets to price in an additional 29 basis points of Federal Reserve rate hikes by year-end, with a 60% chance of a September hike.
Investor attention is now shifting towards upcoming quarterly earnings from major U.S. technology companies like Alphabet, Tesla, and Intel. Analysts like Savita Subramanian from Bank of America remain optimistic, projecting S&P 500 earnings to be 5% above consensus forecasts, with overall earnings growth of 28% year-over-year. The semiconductor industry alone is expected to report approximately 130% earnings growth, highlighting its continued significance in driving corporate profits despite recent valuation concerns.
The recovery in chip stocks and the dip in oil prices come amidst broader market caution. The yield on the benchmark 30-year U.S. Treasury has surpassed 5%, a level that typically diverts funds from equities to fixed income. This elevates borrowing costs and reduces the attractiveness of stocks. However, the stabilization in U.S. equity futures, with Nasdaq futures up 0.1% and S&P 500 futures largely unchanged, suggests a cautious but hopeful outlook ahead of the tech earnings reports.
