Key facts
- Alphabet's stock fell 3% pre-market after reporting strong cloud growth but raising capital expenditure for AI investments.
- Chip stocks saw mixed reactions: South Korean shares jumped over 4%, while STMicroelectronics dropped 14% on an earnings miss.
- Tesla's stock declined 4% after reporting negative free cash flow for the first time in over two years.
- Oil prices rose toward $98 per barrel amid escalating Middle East conflict and Red Sea shipping disruptions.
- Short-term U.S. Treasury yields reached a 17-month high, influenced by rising oil and natural gas prices.
- The European Central Bank is expected to adopt a hawkish stance at its policy meeting due to inflation concerns.
Alphabet's stock experienced a pre-market decline of 3% despite reporting strong growth in its cloud business, as the company also announced an increase in its capital expenditure estimates, particularly for AI-linked investments which are now projected to exceed $200 billion this year. This news, coupled with potential delays in its latest Gemini AI model and rising cash burn, led markets to react negatively.
In the semiconductor sector, chip-heavy South Korean stocks saw a significant boost, jumping more than 4%, seemingly in response to the increased AI spending. However, the positive sentiment was not universal, as Europe's STMicroelectronics saw its shares plummet by 14% following a slight miss in its earnings report.
Stateside, Tesla's stock also faltered, losing 4% after reporting its first negative free cash flow in over two years. Investors are now looking ahead to Intel's earnings report later today, with the U.S. chipmaking giant's shares having seen substantial gains year-to-date despite a recent dip from a late June record high.
Broader market sentiment appeared cautious, with Wall Street futures trending lower before the opening bell. European shares also edged down, with technology stocks, particularly chipmakers like STMicro, leading the decline.
Meanwhile, oil prices continued their upward trajectory, nearing $98 per barrel. This surge is attributed to the ongoing conflict in the Gulf and new shipping disruptions in the Red Sea, following attacks on Saudi oil tankers by Yemen's Iran-aligned Houthis. Shipping data indicated tankers were altering their courses to avoid the affected areas.
The rising oil prices are exerting pressure on oil and natural gas futures, which in turn is impacting interest rate and bond markets. Short-term U.S. Treasury yields climbed to their highest level in approximately 17 months.
With the European Central Bank (ECB) scheduled to hold its policy meeting today, the inflationary impact of spiraling natural gas prices, especially as winter storage begins to be replenished, is expected to lead to hawkish signals from the central bank. Futures markets are currently pricing in two ECB rate hikes by the end of the year and two Federal Reserve hikes within the next nine months.
Brent crude oil surged above $98 a barrel on Thursday, marking its first time above this level in six weeks, as the conflict involving Iran escalated to the Red Sea, bringing the psychological $100 marker back into focus. There were few indications of mediation efforts, with U.S. Secretary of State Marco Rubio commenting that U.S. military policy towards Iran would adopt a retaliatory approach. The rise in oil prices and longer-term crude futures highlights the significant volatility in energy markets since the conflict began nearly five months ago, exacerbating inflation concerns for interest rate markets and central banks.