MORNING BID AMERICAS-Running on empty

Cash burn and spiking crude prices dominated market headlines this week. The AI capex boom has helped many asset classes ignore the rising geopolitical turmoil of the past seven months, but – like the rest of the world – it might be running out of fuel. U.S. stocks fell to multi-week lows on Thursday, led by the tech-heavy Nasdaq, due, in part, to jitters about the durability of the AI capex spree. Alphabet, the first of the tech giants to release earnings this quarter, reported negative free cash flow for the first time ever while also boosting its 2026 capex projection by $15 billion. Moreover, Tesla also reported that it is back in cash-burn mode. Elon Musk's electric vehicle company missed analysts' profit forecasts for the second quarter and reported negative free cash flow for the first time in more than two years, reflecting massive spending on infrastructure related to AI and robotics. Zooming in on the cash burn question, an analysis from Reuters shows that the four major U.S. hyperscalers – Microsoft, Alphabet, Amazon and Meta – could collectively start to spend more on capex than they generate in free cash flow by 2027 if their current spending pace continues, according to LSEG consensus estimates. Markets will get more color on this story next week as Microsoft, Meta and Apple all report. Over in the UK, Andy Burnham took over as prime minister on Monday, becoming Britain's seventh leader in a decade. He surprised many by appointing former defence minister John Healey as finance minister, a move that could indicate that a boost in military spending is coming. Either way, UK markets appear to be giving Burnham the benefit of the doubt for now, with gilts staying relatively calm. Markets may be hoping that the proponent of "business-friendly socialism" has some success because the party waiting in the wings – the populist Reform UK – arguably presents a greater fiscal risk. Looking to next week, the Federal Reserve meeting will be the main event. Little is expected to happen, though the potential for a rate hike has increased this week given the energy price spike. Markets will be listening closely to hear what Chair Kevin Warsh says – or doesn't say – about the current inflation environment and the labor market outlook. He'll get a bit more data to chew on later in the week as second-quarter GDP and core PCE inflation results for June are released. Asian equities remained volatile as well this week. South Korea's chip-heavy KOSPI hit its lowest point in almost three months on Monday. It was in positive territory afterward, but has dipped again on Friday, falling more than 5%. The latest bout of weakness likely reflects the other story dominating headlines: the inferno in the Middle East. After two weeks of renewed fighting between the U.S. and Iran, the conflict has now expanded, with Yemen's Iran-aligned Houthi militia announcing a blockade of Saudi Arabian vessels seeking to pass through the Bab el-Mandeb Strait. This is a massive problem not only for the Saudis but for energy markets overall, as Bab el-Mandeb had become the primary workaround for oil exiting the Middle East following the effective closure of the Strait of Hormuz after the outbreak of the U.S.-Israeli war with Iran on February 28. While energy markets have proven remarkably adaptable in recent months, this may be one crisis too many, as global reserves have been depleted and alternative routes for getting crude out of the Middle East are becoming increasingly inefficient. On top of all this, the Russia-Ukraine war is also disrupting supply, as Kazakhstan's oil production has now plummeted following the closure of a key port after several drone attacks on ships in the Black Sea. Crude prices finally appear to be waking up to the risk. Brent rose above $100 a barrel on Thursday for the first time in two months. Prices dipped below that symbolic threshold on Friday morning, but are still up over 30% in July so far. Given the likelihood that this conflict could escalate further this weekend, prices may not remain capped for long. Ultimately, though, the real energy crisis right now is not in crude but in refined products – fuels like gasoline and diesel – that households and industry actually consume. Refining capacity has been cut drastically this year because of both the Iran and Ukraine wars, and while India may be able to help offset some of that pain in Asia, the crunch is still very real. Given all this, markets outside the energy space are starting to show more signs of concern. The "term premium" on Treasury yields has risen, government bond yields overall are spiking and the dollar continues to strengthen – all indicating that the "stagflation" risk premium is building. The above-mentioned dollar strength is rippling through currency markets, most notably in Japan, where the embattled yen fell to a fresh 40-year low against the greenback this week. Japan imports 90% of its energy, with 95% of that previously coming from the Middle East, so the country is highly exposed to the inflationary pressures posed by the latest energy supply crisis. More broadly, Japan's government appears to be in a policy "doom loop," with markets balking at its loose fiscal policy and insufficiently tight monetary stance. Now, from real wars to trade wars, the White House announced on Friday that it was imposing new tariffs of 10% and 12.5% on goods from 60 trading partners, including Europe and China, over allegations of lax enforcement of forced labor bans. This occurred just as the president's temporary 10% global tariff expired.

MORNING BID AMERICAS-Running on empty

AI capex boom faces cash burn concerns

UK politics and next week's Fed meeting

Middle East conflict and oil supply risks intensify

Markets price in stagflation risk and policy pressure

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