Escalating US-Iran tensions put markets on notice

New Zealand and Australian markets are starting the week to heightened tensions between the US and Iran, which had already sent oil prices higher before two American troops were killed over the weekend in the latest wave of strikes in the Middle East.

US corporate earnings started strong, with the majority of early starters beating analysts’ expectations in the first week of the season, with results from Alphabet and Intel seen as setting the scene on the artificial intelligence trade as investor sentiment waxes and wanes on the hot sector.

China’s Moonshot AI is the latest stumbling block to US supremacy in the AI sector after the release of its Kimi K3 large language model was touted as outperforming some American systems, while DeepSeek was said to be raising as much as 50 billion yuan ahead of a potential initial public offering next year.

And local inflation data will be the major focus domestically this week when Statistics New Zealand releases the June quarter consumers price index on Tuesday, with economists predicting prices rose at a slightly faster clip than the Reserve Bank’s forecast in the three-month period.

Escalating conflict

The US and Iran continued to trade strikes in the Middle East over the weekend, with two American troops killed by an Islamic Republic strike on a US base in Jordan. Brent crude oil futures jumped 4.6% to US$88.01 a barrel heading into the weekend close, adding to the chill in markets on Friday, and Bank of New Zealand senior markets strategist Jason Wong said the increasing scale and scope of attacks over the weekend would likely prompt prices to lurch higher when trading opens today.

Meanwhile, Russia launched one of its largest missile attacks on Kyiv in Ukraine over the weekend, with at least eight people killed and dozens injured. Ukrainian President Volodymyr Zelenskyy has been under pressure after his dismissal of popular defence minister Mykhailo Fedorov triggered a major protest in the capital.

Friday trading on Wall Street set a subdued tone for the antipodes, with the tech-heavy Nasdaq Composite sliding 1.4% as sentiment for the AI trade wavered after China’s Moonshot AI’s new Kimi K3 model was launched as the world’s largest open-source model.

Separately, Reuters reported Chinese AI startup DeepSeek was said to be planning to raise 50 billion yuan at a 500 billion yuan valuation ahead of a planned IPO in Mainland China next year.

US and European stock markets were generally weaker on Friday, with the S&P 500 falling 1% and Dow Jones Industrial Average down 0.8%, while Germany’s DAX slipped 0.3% and France’s CAC 40 declining 0.5%. The UK’s FTSE 100 advanced 0.3%.

Earning power

Still, US reporting season started strong. A tenth of S&P 500 companies reported last week, with 88% of those firms beating analysts’ expectations, according to data compiled by FactSet.

Meanwhile, meme stock GameStop lifted its stake in e-commerce firm eBay to almost 10%, having been rebuffed in a US$56 billion stock-and-cash takeover bid earlier this year.

Results from Google-parent Alphabet on Wednesday and Intel on Thursday will be key for the AI trade, while reports from Tesla, General Motors, RTX and American Express will also be in view.

“This week will test whether the recent technology correction is simply profit-taking after an exceptional rally or the beginning of a broader rotation away from AI leaders,” Moomoo market strategy consultant Greg Boland said in a note. “Investors should expect another volatile week as markets search for their next catalyst.”

The kiwi dollar traded at 58.44 US cents at 7am in Auckland from 58.34 cents last week, while Australian futures were pointing to a 0.6% gain for the S&P/ASX 200 index when trading opens across the Tasman, albeit before the intensification of strikes in the Middle East over the weekend.

Economists are picking Stats NZ’s inflation data on Tuesday will show consumer prices rose at least 4% in the June quarter from a year earlier, a touch above the central bank’s forecast of 3.9%. Bond traders have fully priced in two more rate hikes by the Reserve Bank this year.

Local data today include Stats NZ’s overseas merchandise trade for the month of June.

Reporting by Paul McBeth. Image from Maksym Kaharlytskyi on Unsplash.