Global shares slip as Brent tops $90, tech earnings test AI rally

SYDNEY: Global shares and bonds weakened on Monday as escalating conflict in the Gulf pushed Brent crude above $90 a barrel and revived inflation concerns ahead of a major week for technology earnings.

Brent rose 2.4% to $90.18 a barrel, its highest level in more than a month, while US crude gained 2.1% to $84.18.

The increase followed a ninth consecutive day of US military strikes against Iran and retaliatory attacks across the region. Only a small number of ships crossed the Strait of Hormuz on Sunday, while Tehran claimed to have struck two vessels.

AMP Head of Investment Strategy Shane Oliver said a prolonged closure of the strait and further escalation could push oil towards $150 a barrel to reduce demand in line with lower supply, although this was not the firm’s base case.

Higher fuel prices increased concerns that inflation could remain persistent despite weaker-than-expected US consumer price data last week.

Futures markets are pricing in 29 basis points of Federal Reserve rate increases by the end of the year and indicate a 60% probability of a hike as early as September.

JPMorgan Chief Economist Bruce Kasman said the bank still expected the Federal Reserve to begin raising rates gradually in 2027, but recent policy signals had increased the risk of an earlier move.

Expectations of tighter policy pushed 30-year US Treasury yields above 5%, potentially making bonds more attractive than equities and increasing the earnings expectations companies must meet to justify high valuations.

Technology and artificial intelligence stocks remain under pressure after the Philadelphia Semiconductor Index fell 10% last week, leaving it 20% below its June record.

Investor concerns increased after Chinese artificial intelligence company Moonshot announced its open-weight Kimi K3 model, which it said delivered performance close to Anthropic’s frontier Fable model.

Attention will now turn to earnings reports from Alphabet, Intel and Tesla.

Bank of America analyst Savita Subramanian expects earnings to beat consensus estimates by 5%, equivalent to 28% growth. Technology companies are forecast to contribute more than half of total growth, with semiconductor earnings expected to rise around 130% year-on-year.

S&P 500 futures were unchanged, while Nasdaq futures rose 0.2%. EUROSTOXX 50 futures were flat, and DAX and FTSE futures declined 0.1%.

MSCI’s index of Asia-Pacific shares outside Japan fell 0.3%, while Chinese blue-chip stocks gained 1.4%.

South Korea’s chip-heavy market dropped 4.1% after losing almost 9% last week as leveraged retail investors faced pressure. Japan’s Nikkei was closed for a holiday after declining 6.4% last week.

The oil price increase also complicated the outlook for the European Central Bank, which is expected to hold interest rates at 2.25% on Thursday following its June increase.

Markets have almost fully priced in another ECB increase in September and expect rates to reach 2.75% early next year.

The euro was unchanged at $1.1442, while the dollar traded at 162.36 yen, close to its recent 40-year high of 162.84. Japanese authorities have warned they could intervene if the yen weakens rapidly.

Sterling held at $1.3462 as investors awaited incoming British Prime Minister Andy Burnham’s appointment of a new treasurer.

Gold fell 0.1% to $4,013 an ounce as rising bond yields reduced demand for the non-interest-bearing metal.