- S&P 500 futures slip, Nikkei and Kospi extend their retreat.
- The dollar appreciates slightly as the market reduces the chances of a Fed rate hike.
- The Fed Chairman will testify this week, with the US CPI taking center stage.
SYDNEY: Stock markets fell Monday in Asia as fighting intensified in the Gulf and Iran claimed to have closed the vital Strait of Hormuz, pushing up oil prices and reigniting inflation risks globally.
The dollar rose with bond yields as investors reduced the chances of an interest rate hike from the Federal Reserve, just a day before Chairman Kevin Warsh meets with Congress for the first time in his new role.
Inflation numbers for June on Tuesday could show some slowing in the overall rate of 4.2% as gasoline prices fall, although some of that trend will reverse now that oil is rising again.
Brent crude climbed 4.1% to $79.11 a barrel, up from a recent low of $70.14, while U.S. crude rose 4.1% to $74.37 a barrel.
U.S. officials said about 20 ships had been escorted through the strait in the previous 24 hours, although ship tracking sites showed little traffic.
Stock investors will be hoping earnings season proves as upbeat as expected, with the big banks kicking off from Tuesday, while Netflix and General Electric are also on the agenda.
“Technology continues to be an important part of our models, supported by remarkable earnings growth/momentum and attractive valuations,” Citi analysts wrote in a note.
“Even though AI volatility may remain elevated in the coming quarter, we maintain our overweight on Global IT and the US,” they added. “We combine these growth exposures with an overweight in cyclical regions/sectors, notably Japan, financials and materials.”
S&P 500 futures fell 0.4%, while Nasdaq futures lost 0.9%. In Europe, EUROSTOXX 50 and DAX futures both fell 0.6%, while FTSE futures fell 0.1%.
Japan’s Nikkei fell 1.6%, after losing 1.7% last week, while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9%.
Test the chip bubble
The once red-hot South Korean market lost 5.4% and will be the center of attention after losing almost 8% last week as leveraged bets on semiconductor stocks came under pressure.
The market has become a key global barometer of confidence in the chip sector and further losses could have wider repercussions.
U.S.-listed shares of South Korean chipmaker SK Hynix jumped nearly 14% in their Nasdaq debut on Friday. News that Apple had sued OpenAI and two former employees for stealing trade secrets emerged after the markets closed.
BofA analysts have warned that the AI investment boom is eroding cash generation, with hyperscalers spending $234 billion this year and forward free cash flow expected to turn negative for the first time since at least 2007.
“In this context, many neglected areas offer significantly better value,” they warn in a note.
Rising oil prices pushed 2-year Treasury yields US2YT=RR to their highest level since early 2025 at 4.2393%, while federal funds futures 0#FF: slipped 2 ticks, implying a policy tightening of 39 basis points by the end of the year.
This helped keep the dollar index at 101.13. The euro eased slightly to $1.1394 as Europe is much more dependent on foreign oil than the United States.
The dollar gained 0.2% against the yen to 162.03, regaining some of the ground lost Friday when Japanese Finance Minister Satsuki Katayama floated an idea to encourage the $1.8 trillion Government Pension Investment Fund (GPIF) and other retirement vehicles to repatriate some of their money.
“The GPIF currently splits 50/50 between domestic and overseas and a return to the pre-pandemic norm closer to 60/40 would be accompanied by a significant JPY buying flow,” said Taylor Nugent, senior economist at NAB.
“It should be noted, however, that while allocations can theoretically be reviewed at any time, they tend to move slowly and the investment plan for FY26 is already in place.”
Sterling fell 0.2% to $1.3379 ahead of a pivotal week for British politics as Andy Burnham is expected to be officially named Labor leader on Friday and named prime minister on July 20.
In the commodity markets, the rise in yields weighed on non-interest-bearing gold which slipped 1.1% to $4,076 per ounce.
