Oil Shock Tests ASEAN Resilience as AI Earnings Season Begins

Asian markets opened the week on a cautious note, with the escalating Gulf conflict pushing Brent crude above USD 90 per barrel for the first time in over a month. For Southeast Asian economies heavily reliant on energy imports, this oil spike revives inflation concerns just as a packed week of Big Tech earnings — from Alphabet to Tesla — will test the sustainability of the AI trade.

What is driving the oil price surge?

The U.S. military launched a ninth consecutive day of strikes against Iran, which retaliated with attacks across the region. Brent crude rose 3 per cent, crossing the psychological USD 90 threshold. This jump in fuel costs has rekindled inflation fears, even after U.S. consumer price data surprised on the downside last week.

Futures markets now price in 29 basis points of Federal Reserve rate hikes by year-end. JPMorgan chief economist Bruce Kasman noted: “Our forecast is for a more gradual turn toward a Fed hike in 2027, but the balance of risks is shifting in the direction of an earlier hike than expected.”

How are bond markets reacting?

Futures imply a 60 per cent chance of a rate rise as early as September, pushing 30-year Treasury yields back above the 5.0 per cent barrier. This level historically attracts funds away from equities toward fixed income, raising the valuation bar for future corporate earnings. For ASEAN investors, this means a tighter liquidity environment and potentially higher borrowing costs for regional corporates.

What does this mean for AI and tech stocks?

The shift comes as investors question sky-high valuations for chip and AI stocks. The Philadelphia Semiconductor Index shed 10 per cent last week, now 20 per cent down from June's record high. Markets took an added blow on Friday when Chinese AI firm Moonshot released Kimi K3, an open-weight model that it claims approaches the performance of U.S. giant Anthropic's frontier Fable model. This intensifies competition for AI dominance, a key theme for ASEAN's tech ecosystem.

Can earnings expectations be met?

BofA analyst Savita Subramanian remains upbeat, tipping a 5 per cent beat versus consensus, or 28 per cent growth. Tech is expected to drive over half of growth, with semiconductors rising around 130 per cent year-on-year. Such forecasts helped S&P 500 futures edge up 0.2 per cent in early trading, while Nasdaq futures firmed 0.4 per cent.

In Asia, Japan's Nikkei was closed after shedding 6.4 per cent last week. MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.3 per cent. South Korea's chip-heavy market lost 0.6 per cent, following a near 9 per cent plunge last week as retail investors were squeezed out of leveraged positions.

What about the European Central Bank?

The oil spike will be a headache for the ECB, which meets Thursday and is considered likely to hold rates at 2.25 per cent following June's hike. Markets are almost fully priced for a rise at its September meeting and rates of 2.75 per cent early next year. The euro was flat at USD 1.1433, while the dollar held steady at 162.41 yen, just below the recent 40-year peak of 162.84.

How does this affect commodity markets?

The rise in yields pressured gold, which fell 0.6 per cent to USD 3,993 an ounce. For ASEAN economies, higher oil prices mean increased import bills and potential pressure on current account balances, particularly for net importers like Singapore and Thailand.

FAQ

Will the Fed hike rates in September?

Futures markets assign a 60 per cent probability of a rate rise as early as September, with a total of 29 basis points of hikes priced in by year-end. This is a shift from earlier expectations of a more gradual turn in 2027.

How does this affect ASEAN markets?

Higher oil prices increase import costs for net energy importers like Singapore, Thailand, and the Philippines. Rising U.S. yields may also attract capital away from emerging markets, including ASEAN, tightening financial conditions.

What is the significance of Moonshot's Kimi K3 model?

The Chinese AI firm's open-weight model claims performance approaching Anthropic's frontier Fable model. This intensifies competition in the AI space, potentially pressuring valuations of U.S. and ASEAN tech firms that rely on AI-driven growth narratives.

Photo: CNA