Big Tech’s Moment of Truth, as Oil Keeps Climbing

This week brings a wave of make-or-break tech earnings and a still-surging oil price; next week, the US Federal Reserve meets and Australia’s own crucial inflation figures land. Here is what is driving markets.

Key Takeaways

• Big Tech faces a reckoning. Alphabet, Tesla and Intel each report this week; a test of whether the AI boom’s enormous spending is actually paying off.

• Oil won’t quit. Oil prices jumped around 15% over the week as supply through the Strait of Hormuz was reduced following a ceasefire fracture; reviving the inflation fears June’s data had eased.

• US rate hike discussions. With inflation risks rebuilding, the Fed meets next week to assess its likely path forward.

Big Tech’s Moment of Truth

This is one of Wall Street’s busiest weeks of the summer for earnings, and the spotlight is on technology. Alphabet (Google’s parent), Tesla and chip giant Intel are reporting earnings this week. After a year in which a handful of AI-linked names have driven global markets higher, and several weeks of sharp swings in chip stocks, there could be more volatility.

A lot of analysis will be on whether the market is shifting from pricing in promises on AI to revenues and execution. Strong results could calm the recent nerves in the tech trade which has been underperforming month to date. This week sets the tone for the rest of the earnings season as well as potentially for Australian reporting come August.

Oil’s Relentless Climb

Brent crude surged around 15% over the week as the security of the Strait of Hormuz kept deteriorating. Shipping through the world’s most important oil chokepoint has dwindled, reducing market confidence in a solution to the disruptions. The timing is awkward: June’s inflation data, in the US, showed price pressures finally easing, largely because energy had fallen. A sustained oil spike threatens to unwind that relief — just as central banks weigh their next move.

Markets: A Fragile Rally and a Fed in the Wings

Stretched valuations and fresh oil price volatility have left the markets looking fragile. Bond yields have risen as investors reprice the risk that inflation reignites. The Federal Reserve meets next week and the market is currently pricing in an approximately 15% chance of a rate hike. For Australia, dearer oil prices are an unwelcome upside risk for local inflation just weeks out from the RBA’s August meeting, even as it supports energy names on the ASX.

Looking Ahead

Plenty to watch in the next week. The US Federal Reserve delivers its decision next week, and the Q2 inflation figures land on Wednesday for Australia. With the trimmed mean, the RBA’s preferred measure, still stuck around 3.6% and oil now climbing again, that report will go a long way to help the RBA assess its next move. A fresh wave of mega-cap earnings is due as well.

What We’re Keeping an Eye on

• US Big Tech earnings —  next week : Microsoft and Meta on the 29th; Amazon and Apple on the 30th. 

• Australian Q2 inflation — July 29: The quarter’s headline and underlying inflation figures, and the single most important input into the RBA’s August rate decision.

• US Federal Reserve — July 29: The Fed’s latest decision, with markets no longer ruling out a hike as oil reignites inflation risk.

• Oil & the Strait of Hormuz — ongoing: Brent has pushed above US$87 as shipping through the strait dwindles; every further disruption feeds directly into global inflation.