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London Quick Take - 13 July - Oil higher on Iran escalation, while SK Hynix tumbles in fresh AI blow
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil prices jumped as the US and Iran exchanged military strikes over the weekend, in a sharp escalation since Friday night. It points to a floor under oil prices for some time as geopolitical risk premia is baked in with Iran seemingly in no mood to back down over a couple of key points – control of the Strait of Hormuz and its nuclear programme. While a return to a full-blown military conflict seems unlikely, these tit-for-tat exchanges mean it’s higher for longer, even if we are not back to the kind of peaks we saw earlier in the year. Brent crude prices jumped about 4% but are capped by the 200-day moving average at around $79.80. European stock markets slipped in early trade Monday but the FTSE 100 is holding water thanks to Shell and BP gaining with oil prices, while housebuilders have bounced a bit after a very tough period. US futures are lower after Wall Street closed higher on Friday. Gold is lower and the US dollar is firmer.
Higher oil puts the focus on inflation and rates. New Fed chair Kevin Warsh will testify in Congress on Tuesday and Wednesday. Warsh surprised markets in June with his first outing as the hawkish spin placed the emphasis back on achieving the Fed’s inflation target. At pains to avoid giving forward guidance, he could remain tight-lipped, but the market will want clues.
Of greater importance this week for markets is the US consumer inflation print, which will drive expectations around the next move by the Federal Reserve ahead of its 28-29 July meeting. Last month US CPI YoY came in a 4.2% for the headline CPI, the hottest since April 2023 and up from 3.8% a month before. The 2.9% for core, up from 2.8% in the prior month, was the hottest since September 2025. The Cleveland Fed nowcast points to 3.9% CPI in June, with core CPI at 2.85%. Even if the June reading ticks down the re-escalation of tensions in the Middle East in recent days underscores the inflation risks moving towards the upside and expectations becoming entrenched at a higher level. Last week the New York Fed’s one-year inflation expectations rose to 3.7% in June. The takeaway from the last Fed meeting and the more recent comments from chair Warsh is that if they think core CPI is settling at 3% for the rest of the year then they will act quickly. The market is not ready for a rate hike this month and one following at the September meeting, which I view as increasingly likely.
The other side of the oil-inflation-rates story is the AI theme, which is coming under increasing pressure and stocks are finding it hard to sustain such lofty valuations because the adoption of AI and return on investment is arguably looking slower than expectations driving stock prices indicated. SK Hynix, after a strong debut on the Nasdaq, tumbled more than 15%, triggering circuit breakers on the Kospi once more. The SK Hynix price in Seoul corresponds to its US ADR of $122.7 after closing at USD $168 on Friday. The Kospi index sits 25% below its June all-time highs. Whether it's SK Hynix or the Kospi you have seen it go up so much so quick that it's mainly about managing risk, trimming exposure and taking profits, but it underscores the risks to the trade and the likelihood that semis and associated AI bets will struggle to lead the market and see it ride out geopolitical, inflation and rates shocks. On the plus side in terms of the AI trade, TSMC delivered some robust numbers, with revenues +68% higher in June and first half revenues +36% ahead of last year. NDX sits just above its 50-day line, which held last week after being tested but it’s far from assured to hold against increasing doubts about the durability of AI spend and return on investment and a Fed ready to come down hard on inflation. Geopolitics looks to be the least of the concerns. All this comes as we ride into earnings season with the big banks on Wall Street getting things underway this week, and expectations set high.
Higher oil puts the focus on inflation and rates. New Fed chair Kevin Warsh will testify in Congress on Tuesday and Wednesday. Warsh surprised markets in June with his first outing as the hawkish spin placed the emphasis back on achieving the Fed’s inflation target. At pains to avoid giving forward guidance, he could remain tight-lipped, but the market will want clues.
Of greater importance this week for markets is the US consumer inflation print, which will drive expectations around the next move by the Federal Reserve ahead of its 28-29 July meeting. Last month US CPI YoY came in a 4.2% for the headline CPI, the hottest since April 2023 and up from 3.8% a month before. The 2.9% for core, up from 2.8% in the prior month, was the hottest since September 2025. The Cleveland Fed nowcast points to 3.9% CPI in June, with core CPI at 2.85%. Even if the June reading ticks down the re-escalation of tensions in the Middle East in recent days underscores the inflation risks moving towards the upside and expectations becoming entrenched at a higher level. Last week the New York Fed’s one-year inflation expectations rose to 3.7% in June. The takeaway from the last Fed meeting and the more recent comments from chair Warsh is that if they think core CPI is settling at 3% for the rest of the year then they will act quickly. The market is not ready for a rate hike this month and one following at the September meeting, which I view as increasingly likely.
The other side of the oil-inflation-rates story is the AI theme, which is coming under increasing pressure and stocks are finding it hard to sustain such lofty valuations because the adoption of AI and return on investment is arguably looking slower than expectations driving stock prices indicated. SK Hynix, after a strong debut on the Nasdaq, tumbled more than 15%, triggering circuit breakers on the Kospi once more. The SK Hynix price in Seoul corresponds to its US ADR of $122.7 after closing at USD $168 on Friday. The Kospi index sits 25% below its June all-time highs. Whether it's SK Hynix or the Kospi you have seen it go up so much so quick that it's mainly about managing risk, trimming exposure and taking profits, but it underscores the risks to the trade and the likelihood that semis and associated AI bets will struggle to lead the market and see it ride out geopolitical, inflation and rates shocks. On the plus side in terms of the AI trade, TSMC delivered some robust numbers, with revenues +68% higher in June and first half revenues +36% ahead of last year. NDX sits just above its 50-day line, which held last week after being tested but it’s far from assured to hold against increasing doubts about the durability of AI spend and return on investment and a Fed ready to come down hard on inflation. Geopolitics looks to be the least of the concerns. All this comes as we ride into earnings season with the big banks on Wall Street getting things underway this week, and expectations set high.
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