Oil prices in view as Middle East conflict pauses; megacap earnings loom

New Zealand and Australia are starting the week to mixed signals in the Middle East, as the US and Iran paused strikes for a couple of days while tensions between Saudi Arabia and Yemen-based Houthi militants escalate.

A slide in oil prices heading into the weekend took the heat off interest rates on Friday as the US Federal Reserve prepares to deliver its next update on monetary policy.

Meanwhile, earnings from Microsoft, Meta Platforms, Amazon and Apple are at the top of investors’ watchlists amid the renewed concerns about the pace of spending on artificial intelligence infrastructure, even as the broader US reporting season continues to beat expectations.

And tech heavyweights have thrown their support behind open-source AI models after Nvidia chief executive Jensen Huang wrote an open letter urging policymakers to avoid stifling competition and driving innovation overseas.

Uncertain times

The US paused attacks on Iran for a second day as Iranian and Omani officials met over the weekend, although US ambassador to the United Nations Mike Waltz downplayed suggestions the White House had decided against escalation, saying all options were on the table.

Traffic through the Strait of Hormuz has effectively been frozen by the renewed conflict, while attacks between Saudi Arabia and Yemen-based Houthis on the Red Sea threatened to create further disruptions.

Still, Brent crude oil fell 3.7% to US$96.78 a barrel on Friday, and the yield on US 10-year treasuries dipped 2 basis points to 4.69% heading into the Fed’s policy review on Wednesday in Washington. Bond traders predict the federal open market committee will hike the federal funds rate a quarter-point in September, with the market pricing in a 62% chance it will stay on hold this week.

“The Fed meets this week with the question hanging over the FOMC is whether they will display patience or whether the Committee has run out of patience. The former appears most likely to us, at least for now,” Salt Funds Management economist Bevan Graham said in a note. “Softer payrolls and a softer CPI report may have reduced the pressure to tighten, but upside risks to rates include persistently high oil prices and a more hawkish Fed reaction function.”

Still strong

About 27% of S&P 500 companies have reported in the latest US earnings season, with 86% of those firms beating analysts’ expectations, according to data compiled by FactSet. Of the 11 sectors tracked, healthcare is the only one to have reported a year-on-year decline in earnings.

American Express and Verizon Communications were the latest to top forecasts when they reported on Friday.

Still, investors remain nervous about the AI sector, with capital expenditure intentions from Alphabet outweighing its rapid growth in cloud computing revenue, and results from other Magnificent 7 companies this week will be keenly watched.

The Nasdaq Composite declined 0.6% on Friday in the US, while the S&P 500 nudged up 0.1% and the Dow Jones Industrial Average rose 0.5%.

Nvidia CEO Jensen Huang took to the X social media platform to push for open-source AI models. Nvidia, Microsoft, Meta, OpenAI, Mistral were among firms signing an open letter urging US policymakers not to crack down on open-source models amid suggestions it would take action against China’s Moonshot AI.

Meanwhile, US President Donald Trump took a shot at the European Union over its decision to fine Alphabet’s Google, saying the White House would launch a probe into the bloc’s fining of US big tech firms.

Australian futures are pointing to a 0.6% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the kiwi dollar traded at 57.92 US cents at 7am in Auckland from 57.75 cents.

New Zealand’s Reserve Bank is due to release loan-to-value and debt-to-income lending data today, while Goodman New Zealand is holding its annual meeting in Auckland, where shareholders will vote on approving a share buyback scheme.

Reporting by Paul McBeth. Image from Robb Miller on Unsplash.