Key facts
- Brent crude oil surged to over $108 per barrel amid Middle East conflict and supply concerns.
- Markets are pricing in an 86% chance the Federal Reserve will lift rates by 25 basis points on Wednesday.
- Markets imply a 76% chance the Bank of Japan will lift its cash rate by a quarter point to 1.25% on Friday.
- AI-linked stocks fell on Monday amid safety warnings.
- OpenAI's CEO suggested the firm would delay its IPO until 2027.
Global stock markets slid as oil prices surged and investors braced for potential interest rate hikes from the US Federal Reserve and the Bank of Japan. Brent crude oil climbed to over $108 per barrel on Monday, driven by new strikes in the Middle East, including attacks on ships in the Gulf and the temporary closure of Saudi Arabia's East-West pipeline, which threatened up to 4% of global crude supply. Talks between Iran and Gulf Arab states on managing the Strait of Hormuz were postponed, raising concerns about prolonged elevated oil prices and inflation.
In the US, markets are pricing in an 86% chance that the Federal Reserve will raise interest rates by 25 basis points on Wednesday, with further tightening anticipated. The hot US consumer price report last week did little to assure the central bank about meeting its 2% inflation target. Michael Feroli, chief US economist at JPMorgan, expects the Fed to hike rates twice this year, stating that failing to act could risk the institution's credibility.
Meanwhile, AI-linked stocks fell amid safety warnings from industry figures. OpenAI CEO Sam Altman suggested the company would delay its IPO until 2027, deeming a 2024 public offering "ill-advised." US President Donald Trump dismissed these warnings as outlandish, while Chinese state media characterized an essay by Anthropic's Dario Amodei calling for an AI slowdown as a "Cold War playbook" targeting China. The potential slowdown in AI development could impact the buildout of related infrastructure.
Asian markets declined, with Japan's Nikkei falling 1.7% and South Korea dropping 3.3%. The MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.8%. European futures also pointed lower, with EUROSTOXX 50 futures down 0.5%, DAX futures down 0.4%, and FTSE futures down 0.1%. On Wall Street, S&P 500 futures lost 0.5%, and Nasdaq futures fell 1.1%. Ben Snider, chief US equity strategist at Goldman Sachs, believes strong corporate earnings will support Wall Street despite rising borrowing costs, expecting the bull market to continue.