Oil Declines, Bonds Rally as US-Iran Tensions Ease: Markets Wrap

(Bloomberg) — Oil dropped and bonds climbed as the US and Iran refrained from retaliatory strikes, easing concerns over potential disruptions to Middle East energy supplies after a recent escalation in the conflict.

Brent crude fell as much as 7.4% to below $90 a barrel, before paring losses as the US paused an almost two-week run of strikes against Iran.

Treasuries rose, while European bond futures and Asia Pacific government bonds advanced as easing Middle East tensions tempered inflation concerns. The yield on the benchmark 10-year Treasury fell four basis points to 4.64%. The dollar, the haven of choice during the Middle East conflict, weakened against all of its Group-of-10 peers.

Futures contracts for the Nasdaq 100 Index climbed 1.1% and those for the S&P 500 Index advanced 0.6%, indicating a rebound after last week’s selloff in chip stocks. Asian stocks were a touch more cautious, swinging between small gains and losses ahead of megacap tech earnings later this week. Chinese chipmaker CXMT Corp. jumped 472% on its trading debut.

“A resolution to the conflict would be a positive development,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Intelligence Lab. The pause in attacks raises “hopes that the two sides will enter negotiations.”

The lull in hostilities sets the tone for a pivotal week in markets, with traders focused on whether the Federal Reserve will raise interest rates on Wednesday after the recent surge in oil prices fueled inflation concerns. Investors are also awaiting earnings from megacap technology companies after a recent backlash against heavy spending on artificial intelligence.

After striking Iran for 13 days, the US has apparently held off since late Friday without explanation, raising questions about President Donald Trump’s next move. Iran’s army said Sunday that Tehran had also suspended its military response.

Tensions in the Middle East had sent oil prices soaring in July, overshadowing a tamer-than-expected reading on June consumer prices that seemed to offer officials breathing room to keep rates stable.

“We think the Fed will probably not hike,” Krishna Guha, head of central bank strategy at Evercore ISI, wrote in a note. “But we cannot take the probability too low given Warsh’s refusal to set out his strategy,” he said, referring to the new Fed chair Kevin Warsh.

Three days of Group-of-Seven central bank decisions begin with the Fed on Wednesday, followed by the Bank of England and the Bank of Japan. While no changes are expected in interest rate policy, officials are likely to emphasize vigilance over the inflationary impact of higher energy prices.

In Asia, the Singapore dollar strengthened against the US currency after officials further tightened monetary policy. Traders will be monitoring the Indonesian rupiah after Bank Indonesia Governor Perry Warjiyo resigned for “personal reasons.”

In other corners of the market, non-interest-bearing gold climbed over 1% to near $4,100 an ounce. The yen strengthened to about 163.55 per dollar.

What Bloomberg Strategists Say…

“Investors are taking another look at the circularity in AI themes, which points to valuation concerns down the road. Nvidia is reportedly in discussions to provide a guarantee to help OpenAI lease computing from a giant data center which is being developed by SoftBank Group. It doesn’t get much more circular than that for equity bears.”

— Mark Cranfield, MLIV. For full analysis, click here.

Another key focus for markets will be earnings from tech companies this week after a recent round of selling in AI stocks rekindled doubts over whether billions of dollars being poured into infrastructure will generate commensurate returns. The selloff showed how much the narrative around AI and the Magnificent Seven tech behemoths has shifted.

This change makes for a tough setup heading into this week, with earnings from Microsoft Corp. and Meta Platforms due on Wednesday, followed by Apple Inc. and Amazon.com Inc. on Thursday.

“Looking ahead, tech earnings and capital expenditure plans will be firmly back on the agenda this week,” said Tim Waterer, chief market analyst at KCM Trade in Sydney. “Traders remain somewhat nervy about the scale of the capex being committed, given lingering concerns over how long the return-on-investment phase may take to fully materialise.”

Corporate Highlights:

DeepSeek has told prospective investors in its second fundraising round that it’s suspending the deal for now, people familiar with the matter said. Nvidia Corp. is in discussions to provide a guarantee of about $250 billion to help OpenAI lease computing from a giant data center project, the Wall Street Journal reported, citing people familiar with the matter. Samsung Electronics Co. won a contract worth more than $200 billion to supply chips to Broadcom Inc., highlighting robust demand for AI infrastructure. Nvidia will invest $1 billion in Naver Corp. to help finance an AI data center in South Korea. Qualcomm Inc., the biggest maker of smartphone processors, plans to increase prices by a percentage in the double digits. Some of the main moves in markets:

Stocks

S&P 500 futures rose 0.7% as of 10:56 a.m. Tokyo time Japan’s Topix rose 0.8% Australia’s S&P/ASX 200 rose 1% Hong Kong’s Hang Seng rose 0.3% The Shanghai Composite rose 0.5% Euro Stoxx 50 futures rose 0.3% Currencies

The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.4% to $1.1410 The Japanese yen rose 0.2% to 163.54 per dollar The offshore yuan was little changed at 6.7681 per dollar Cryptocurrencies

Bitcoin rose 0.9% to $65,147.71 Ether rose 1.7% to $1,945.61 Bonds

The yield on 10-year Treasuries declined four basis points to 4.63% Japan’s 10-year yield advanced 2.5 basis points to 2.795% Australia’s 10-year yield declined nine basis points to 5.00% Commodities

West Texas Intermediate crude fell 4.5% to $85.25 a barrel Spot gold rose 1.3% to $4,106.55 an ounce This story was produced with the assistance of Bloomberg Automation.

–With assistance from Toby Alder, Winnie Hsu, Momoka Yokoyama and Kanoko Matsuyama.

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