Asian shares shaky as oil climbs, major tech earnings loom

[SYDNEY] Asian share markets slipped on Monday (Jul 20) as the escalating conflict in the Middle East lifted oil prices and fanned fears of inflation, while a packed week of major tech earnings will further test investor faith in the AI trade.

Brent crude climbed above US$90 a barrel for the first time in more than a month as the US military started a ninth straight day of attacks against Iran, which in turn struck targets across the region. Just a handful of ships transited the Strait of Hormuz on Sunday and one was reported to be on fire.

“The longer the Strait remains closed and the war escalates the greater the risk that oil prices will have to rise to around US$150/barrel to bring demand down to match the hit to supply,” said Shane Oliver, head of investment strategy at fund manager AMP. “This is not our base case but it’s a high risk again.”

Brent duly added 2.6 per cent to US$90.40 a barrel, while US crude rose 2.3 per cent to US$84.39.

The jump in fuel costs has revived worries about inflation even as US consumer price data surprised on the downside on Jul 14, leading futures markets to price in 29 basis points of US Federal Reserve rate hikes by the end of 2026.

“Our forecast is for a more gradual turn toward a Fed hike in 2027, but the balance of risks is shifting in the direction of an earlier hike than expected,” said Bruce Kasman, chief economist at JPMorgan, noting a recent hawkish tilt in US Fed policy rhetoric.

Futures imply a 60 per cent chance of a rate rise as early as September, pushing yields on 30-year Treasuries back above the psychological 5 per cent barrier. This is a level that tends to attract funds away from equities and toward fixed income, while lifting the valuation bar for future corporate earnings.

The shift has come just as investors question sky-high valuations for chip and AI stocks, which has seen the Philadelphia Semiconductor Index shed 10 per cent in the week ended Jul 19 to leave it 20 per cent down from June’s record high.

High expectations for earnings

Markets took an added blow on Jul 17 when Chinese AI firm Moonshot said it had a new open weight model, Kimi K3, that it says delivers performance approaching US giant Anthropic’s frontier Fable model.

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All of which raises the stakes for this week’s rush of profit results, which include Alphabet, Intel and Tesla.

BofA analyst Savita Subramanian remains upbeat on the earnings outlook, tipping a 5 per cent beat versus consensus, or 28 per cent growth. Tech is expected to drive over half of growth, with semiconductors expected to rise around 130 per cent year-on-year.

Such forecasts helped S&P 500 futures hold steady, while Nasdaq futures edged up 0.1 per cent. In Europe, Eurostoxx 50 futures were little changed, while Dax futures and FTSE futures eased 0.1 per cent.

Japan’s Nikkei was closed for a holiday, having shed 6.4 per cent in the week ended Jul 19 in a tech-led rout. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent, while Chinese blue chips rose 1.4 per cent.

South Korea’s chip-heavy market lost a further 4.2 per cent, after diving almost 9 per cent in the week ended Jul 19 in wild trade as retail investors were squeezed out of leveraged positions.

The latest spike in oil will be a headache for the European Central Bank which meets on Thursday and is considered likely to hold rates at 2.25 per cent following June’s hike.

Attention will be on policy makers’ guidance with markets almost fully priced for a rise at its September meeting and rates of 2.75 per cent early in 2027.

The euro was flat at US$1.1433, having spent more than a week trading between US$1.1377 and US$1.1482. The US dollar was steady at 162.39 yen, just below the recent 40-year peak of 162.84 as Japanese authorities flag the threat of intervention should the yen weaken quickly.

Sterling held at US$1.3449 as bond markets waited for Britain’s incoming Prime Minister Andy Burnham to name a new treasurer.

In commodity markets, the rise in yields pressured non-interest-paying gold which fell 0.5 per cent to US$3,998 an ounce. REUTERS