Key facts
- U.S. military ceased attacks on Iran, and Iran paused its actions, leading to a de-escalation in the Gulf.
- Brent crude oil dropped 4% to $92.80, with prices near $100 seen as a key level for continued dialogue.
- Nasdaq futures rose 1%, while Asian stocks saw a slight decline.
- Nvidia is reportedly in discussions to provide a significant backstop for OpenAI's data center project.
- Chinese chipmaker CXMT Corp's shares surged 500% in their Shanghai debut after raising $8.6 billion.
- Bonds rallied, and expectations for a Federal Reserve rate hike this week decreased.
European and global markets are showing cautious optimism as a fragile truce appears to have settled in the Gulf, with the U.S. military ceasing attacks and Iran pausing its actions. This de-escalation has led to a roughly 4% drop in Brent crude oil prices to $92.80, with analysts suggesting that prices near the $100 mark may be necessary to maintain dialogue between the two sides.
Despite Houthi attacks on oil facilities in Saudi Arabia, investors have largely interpreted the situation as a step toward reduced tensions. Equities saw a muted positive reaction, with Nasdaq futures up 1%, though Asian stocks eased amid concerns that a wave of tech earnings this week could highlight the significant capital expenditure being directed towards artificial intelligence.
The scale of investment in AI was underscored by a Wall Street Journal report indicating Nvidia is in talks to provide a substantial backstop for OpenAI's data center project. This week's earnings reports include major tech companies such as Microsoft, Meta Platforms, Amazon, and Apple, alongside industrial, defense, and healthcare stocks. Approximately one-third of S&P 500 companies are set to report, with earnings on track for a 26.5% increase year-on-year, though this may fall short of elevated expectations.
In a notable development, Chinese chipmaker CXMT Corp's shares surged 500% on their Shanghai trading debut, following an $8.6 billion IPO, the largest in Asia this year. The retreat in oil prices has also benefited bonds, which experienced a difficult prior week. Fed funds futures have adjusted, pricing out 2 to 3 basis points of tightening, with the market assigning a one-in-three chance of a Federal Reserve rate hike this week, despite expectations that Chair Kevin Warsh will likely favor holding steady.
The Bank of England and the Bank of Japan are both scheduled to hold meetings this week and are widely expected to maintain their current policy stances while remaining vigilant about inflation risks. The balance of risks was highlighted by the Monetary Authority of Singapore's unexpected decision to tighten policy by allowing a faster appreciation of its currency.