Renewed fighting in the Middle East boosts inflation fears, falling AI chip stocks are dragging down global stock markets

The Zhitong Finance App learned that due to the further escalation of the situation in the Middle East, international oil prices soared sharply on Monday, while artificial intelligence (AI) related chip stocks continued to be sold off, dragging down major US and Asian stock markets generally. The market is concerned that geopolitical risks will drive up energy costs and may increase inflationary pressure, further affecting the global economy and corporate profit prospects.

As of Monday, the international benchmark Brent crude oil futures rose 9.6% to $83.30 a barrel. Earlier, both the US and Iran claimed control of the Strait of Hormuz, leading to continued escalation of tension on this important global energy transportation channel.

Meanwhile, US President Trump announced the resumption of the maritime blockade against Iran and stated that a 20% “compensation fee” will be levied on all goods transported through the Strait of Hormuz to cover the costs of ensuring the safety of this waterway. Affected by this news, the increase in oil prices widened further.

However, the current price of Brent crude oil is still significantly lower than the previous phased high of nearly 120 US dollars per barrel during the Middle East conflict.

Dragged down by rising oil prices and a correction in the AI sector, the three major US stock indices fell collectively. The S&P 500 index fell 0.79%, ending the recent continuous upward trend, and chip stocks became the main drag on the market today. Micron Technology (MU.US) fell 4.32%, taking back some of its gains during the year. Despite being driven by the AI boom, Micron's cumulative increase during the year is still over 240%, and the market is beginning to worry about whether the current AI-related demand and profit growth can be maintained for a long time. AI leader Nvidia (NVDA.US) fell 3.52% on the same day. As the listed company with the highest current market capitalization in the US stock market, Nvidia has become one of the individual stocks that has dragged down the S&P 500 index the most.

The Asian market is also under pressure. Korea's composite stock price index fell sharply by 8.9%. Among them, the stock price of memory chip giant SK Hynix plummeted 15.4%, the biggest one-day decline since listing in 1997.

Notably, SK Hynix (SKHY.US) just completed issuing US$26.5 billion of American Depositary Receipts last week and landed on the NASDAQ last Friday. The stock price rose 13.1% on the first day of listing, but fell 9.3% in the US stock market on Monday.

In contrast, some companies in the AI industry chain performed relatively steadily. TSM.US announced that June revenue increased nearly 68% year on year, driving cumulative revenue growth of 35.6% year on year in the first half of this year. Boosted by performance, TSMC's stock price in the Taiwan market rose 1%, but its US listed stock (TSM.US) still fell 2.9%.

This week's market focus will shift to the US corporate earnings season. On Tuesday, major financial institutions including Bank of America (BAC.US), Citigroup (C.US), J.P. Morgan Chase (JPM.US), Goldman Sachs (GS.US), and Wells Fargo Bank (WFC.US) will announce their latest quarterly results.

According to FactSet data, analysts expect that the overall profit of S&P 500 companies in the second quarter will increase by 23.6% year on year. If the forecast is fulfilled, profit growth of more than 20% for the second consecutive quarter will be achieved. The market generally believes that in the current context where stock market valuations are at historically high levels and fluctuations in AI concept stocks are intensifying, whether companies can deliver strong performance will be the key to supporting the further rise of the market.

In the bond market, US Treasury yields continued to rise as rising international oil prices raised concerns about inflation. The 10-year US Treasury yield rose to 4.61%, up from 4.56% at the close of trading last Friday, and also significantly higher than the level of about 3.97% before the outbreak of the Iranian conflict.

Higher energy prices may prompt the Federal Reserve and other major central banks to continue to maintain tight monetary policies, or even raise interest rates further to curb inflation. However, higher interest rates may also drag down economic growth and put pressure on valuations of risky assets such as stocks and bonds.