Latest News

Oil jumps on Middle East attacks; tech stocks fall due to AI valuation concerns

Oil jumps on Middle East attacks; tech stocks fall due to AI valuation concerns
Oil jumps on Middle East attacks; tech stocks fall due to AI valuation concerns

Oil prices jumped by over 3% Wednesday, bond prices fell as U.S. sanctions against Iranian crude oil?threatened a ceasefire. Stocks wobbled due to concerns that the record AI rally might be losing its buyers.

Brent crude futures rose 3.3% to $76.54 per barrel, the highest gain in a single day since May. Although this was far below the peak of $120 at the height of fighting, it was still enough to introduce a new inflation risk in the bond market.

Jason Wong is a senior strategist with BNZ Wellington. "Obviously, the market does not like these attacks... But it's still not in full-blown panic mode," he said. The U.S. claimed it had hit Iranian air defences and coastal surveillance sites. Iran's Revolutionary Guards also said that they had targeted U.S. forces in Bahrain and Kuwait where air raid sirens were heard on Wednesday.

Washington has also pulled back a concession that allowed Iran to sell its oil on the global market. The Iranian Foreign Ministry said this was a breach of the framework agreement to end the war.

The benchmark 10-year U.S. Treasury notes yields have risen for the seventh consecutive day to a one-month-high of 4.56%. In Europe, yields in Germany and Italy on 10-year bonds reached new highs, at 3,04% and 3.85% respectively.

David Chao is the Asia-Pacific Global Market Strategist at Invesco, based in Singapore.

"I believe that Brent is still trading at levels which, in my opinion, do not take into account the ongoing flare-ups in the Middle East." The U.S. Strategic Petroleum Reserve's crude oil stocks fell to their lowest level in 1983 this week, making the markets more susceptible to supply shocks.

SAMSUNG SINKS European market opened under pressure with the STOXX600 down 0.8% as healthcare and consumer shares saw sales, which offset gains in oil and Gas shares. U.S. stock futures and European stock futures are down between 0.2% and 0.3%.

Investors were rattled when Samsung Electronics' shares fell for the second session in a row, despite the company reporting a 19-fold increase in profits. Analysts and investors worry that the demand for memory chips may slow down in the second half. In the past two weeks, the focus has shifted away from the hot chip stocks to other parts of the market. This includes financials and consumer stocks, and then back to so-called hyperscalers who have dominated the market for the past year or so. Samsung's results showed that investors are questioning valuations more and more as the bottlenecks of some parts of AI supply chains, such as data centres or memory chips, start to disappear. Pricing for AI models is also becoming harder to predict. You could see the market trying to determine the exact pricing power, which can lead to fluctuations in valuations. We also see that capex expenditure is increasing relative to EBITDA, meaning that the amount of assistance that can be provided via share buybacks etc. is decreasing. We may'see pressure on valuations within certain parts of the 'AI chain,' said Marieke Blom, ING Chief Economist and Global Head of Research. The dollar was stable on the currency markets. The euro hovered around $1.14, and the yen at 162, which is not far off its 40-year low.

The minutes of the Federal Reserve's meeting last month are due on Wednesday. Traders believe that Kevin Warsh, as new chair, may reduce their detail in order to soften any possible policy message. Reporting from Tom Westbrook and Amanda Cooper, both in Singapore; editing by Jamie Freed and Sonali Paul.

(source: Reuters)