Share markets sank in Asia on Monday as fighting intensified in the Gulf and Iran claimed to have closed the vital Strait of Hormuz, sending oil prices surging and rekindling inflation risks globally.
The dollar rose with bond yields as investors narrowed the odds of a hike in interest rates from the Federal Reserve, just a day before Chair Kevin Warsh is due to face Congress for the first time in his new role.
Inflation figures for June on Tuesday could show some cooling in the headline rate of 4.2% as petrol prices decline, though some of that will reverse now that oil is rising anew.
Brent crude climbed 4.3% to reach $79.31 a barrel, up from the recent trough of $70.14, while U.S. crude added 4.4% to $74.62 a barrel.
U.S. officials said around 20 vessels had been escorted through the strait in the previous 24 hours, though ship tracking sites showed little traffic moving.
For equity investors, a lot is now riding on the coming earnings season, where expectations are sky-high for AI-related profits. The major banks kick off from Tuesday, while Netflix (NFLX.O) and General Electric (GE.N) are also on the docket.
"Tech continues to screen highly in our models, supported by stand out earnings growth/momentum and attractive valuations," analysts at Citi wrote in a note.
"While AI volatility may remain elevated over the coming quarter, we maintain our Overweight stance on global IT and the U.S.," they added. "We pair these growth exposures with over weights in cyclical regions/sectors, including Japan, financials and materials."
S&P 500 futures dipped 0.6%, while Nasdaq futures lost 1.3%. In Europe, EUROSTOXX 50 futures fell 0.9%, while DAX futures declined 1.0% and FTSE futures eased 0.3%.
Japan's Nikkei (.N225) shed 2.2%, having lost 1.7% last week, while MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) sank 1.8%.
TESTING THE CHIP BUBBLE
South Korean chipmaker SK Hynix's (000660.KS) U.S.-listed shares jumped almost 14% in their Nasdaq debut on Friday. News that Apple (AAPL.O) had sued OpenAI and two former employees for trade secrets theft emerged after markets closed.
Chip giant Taiwan Semiconductor Manufacturing Co. (2330.TW) reports results on Thursday and another record profit is expected.
Analysts at BofA warned the AI capex boom was eroding cash generation with hyperscalers having spent $234 billion this year and forward free cash flow expected to turn negative for the first time since at least 2007.
"Against that backdrop, many overlooked areas offer materially better value," they said in a note.
The spike in oil pushed 2-year Treasury yields to their highest since early 2025 at 4.2393%, while Fed fund futures slipped 2 ticks, implying 39 basis points of policy tightening by the end of the year.
That in turn kept the dollar index firm at 101.13. The euro eased a fraction to $1.1394 as Europe is far more reliant on foreign oil than the U.S.
The dollar added 0.2% on the yen to 161.97 , regaining some of the ground lost on 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 bring some of their money home.
"The GPIF currently allocates 50/50 between domestic and offshore and a move back even to the pre-pandemic norm closer to 60/40 would come with a large JPY buying flow," said Taylor Nugent, a senior economist at NAB.
"It is worth noting though that while allocations can theoretically be reviewed any time, they tend to be slow moving, and the FY26 investment plan is already in place."
The pound eased 0.2% to $1.3383 ahead of a pivotal week in UK politics as Andy Burnham is expected to be formally anointed as Labour leader on Friday and named as prime minister on July 20.
In commodity markets, the rise in yields weighed on non-interest bearing gold, which slipped 1.5% to about $4,060 an ounce .
