A playbook appears to have developed over the five months of the Iran war where each new escalation quickly deescalates into another round of talking. But markets may be a bit blasé this time around, as the threat by Yemen’s Houthi militia to block Saudi shipping potentially opens a new front in the conflict.
Regardless, the dip in crude prices below $90/bbl on Monday was enough to spark a decent rally in Asia stocks, with Tokyo and Seoul stocks up briskly on Tuesday and U.S. futures in positive territory too. Eyes are more likely trained on the big tech earnings about to hit the Street, as Alphabet is due to report on Wednesday.
Otherwise the focus this morning was Donald Trump’s new tariff salvo against Canada and new British Prime Minister Andy Burnham’s surprise pick for finance minister. Trump re-opened regional trade wars by saying he would apply 50% tariffs against some $20 billion of Canadian imports next month, goods such as wine, cement and clothes that account for some 5% of Canadian exports south of the border. Canadian PM Mark Carney said he would double down on negotiations to resolve the issue.
In the UK, Burnham said he would appoint former defence minister John Healey as his new Chancellor of the Exchequer, quashing reports that interior minister Shabana Mahmood was due to get the job. This raises speculation that defence spending may be carved out of the UK’s standing fiscal rules. Burnham’s team also announced moves to cut tax on electricity prices, which would be funded by scrapping a digital ID program. That may help lower UK inflation a bit later in the year, taking pressure off the Bank of England to tighten policy.
Alphabet earnings in focus
As market anxiety rises about the pace of AI-related demand growth, megacap Alphabet is the first of the so-called hyperscalers to report quarterly earnings this season. On Wednesday, it's expected to report an overall 21% increase in revenue to $117 billion from $96 billion a year ago, with annual growth in its cloud revenue nudging higher to a whopping 64%.
Alphabet shares have lagged its rivals in recent months, but its stock got a boost on Monday from reports that Google is developing a new server chip that would incorporate elements of its Gemini AI model directly into the hardware.
Markets take comfort from hopes of de-escalation
Global stock markets may just be weary of the back-and-forth in the Middle East, but they latched onto a sliver of hope in the still-raging U.S.-Iran conflict overnight. Reports of some mediation efforts sent Brent crude prices back below $90 per barrel, even as renewed fighting continued into its 10th day and the conflict risked spreading.
I’ll get into all that and more below.
But first, check out my column on why markets are likely hoping new UK Prime Minister Andy Burnham succeeds, whether they agree with his policies or not.
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