Daily market review
Oil reaches $95.18 as a 4.79% yield weighs on equities
Yesterday’s wave of US strikes on Iranian military targets turned the risk around the Strait of Hormuz into a measurable shock to oil, inflation and borrowing costs. Manufacturing and demand for artificial-intelligence infrastructure remain strong, but they have not yet removed the pressure on bonds and highly valued equities.
This week’s central question
Can strong profits and improving manufacturing offset the inflation that prevents interest-rate cuts?
What has changed since yesterday? The growth side gained support from Dell’s $60.9 billion of artificial-intelligence server orders and expanding manufacturing in the US and euro area. Yet Brent reached $95.18, the US 10-year yield 4.79% and euro-area inflation 3.3%. The week’s question therefore remains unresolved.
Weakens growth: Brent reached $95.18, the US 10-year yield 4.79%, and euro-area inflation 3.3%
Next answers: the Federal Reserve’s regional review on 2 September, the US services index on 3 September and the jobs report on 4 September
1 Geopolitics and energy
US strikes on Iran lifted oil and yields, raising both energy and borrowing costs for equity investors
Facts
US Central Command said it struck Iranian air-defence, radar, maritime, mine-laying and communications targets on 1 September after attempted attacks on commercial shipping in the Strait of Hormuz. ICE data put November Brent at $95.18 a barrel: $4.69, or about 5.2%, above the previous reference point. The US 10-year Treasury yield rose from 4.75% to 4.79%, while the S&P 500 closed Tuesday at 7631.47 points, down 0.71%.
Why it matters
The fact is a new stage of military action and a clear response in energy and bond markets. Our interpretation is that dearer oil raises fuel, transport and manufacturing costs, so inflation may fall more slowly. Central banks would then have less room to cut interest rates, leaving governments, businesses and home buyers facing expensive credit. This does not mean that an interest-rate increase is certain.
Portfolio impact
A higher oil price can increase revenue for producers and some energy-infrastructure companies. It squeezes the margins of airlines, hauliers, chemical manufacturers and other energy-intensive businesses. A higher yield reduces the price of existing long-dated bonds and weighs most heavily on highly valued growth equities, property companies and heavily indebted issuers. Short-dated US-dollar instruments may remain comparatively attractive.
Opportunity and risk
An opportunity would emerge if shipping through the Strait of Hormuz remained uninterrupted and oil quickly surrendered its risk premium: bonds and rate-sensitive equities could then recover. The main risk is a genuine supply or transport disruption that carries the shock into consumer prices. The nearest catalysts are official shipping updates, energy-inventory data and the Federal Reserve’s regional economic review.
2 Manufacturing and prices
US and euro-area manufacturing expanded, but a 71.1 US input-price reading keeps inflation in focus
Facts
The Institute for Supply Management’s US manufacturing Purchasing Managers’ Index was 54.6 in August, compared with 55.6 in July. A reading above 50 usually indicates expansion and one below 50 contraction. New orders eased to 53.7, production was 58.3 and the prices-paid index remained at 71.1. The euro-area manufacturing Purchasing Managers’ Index rose from 51.9 to 52.7, while Germany’s advanced from 52.2 to 54.3.
Why it matters
The data do not describe a global industrial recession: orders and output on both sides of the Atlantic remain in expansion. Yet the US prices-paid index showed rising raw-material costs for 23 consecutive months. Event → firm demand supports revenue and jobs → expensive metals, energy and transport constrain margins → interest rates may stay higher for longer. European defence and data-centre orders provide an important growth counterweight.
Portfolio impact
Industrial equipment, automation, defence, construction-material and data-centre suppliers may receive continued order support. The biggest benefit should accrue to companies able to pass higher costs to customers without losing demand. Low-margin manufacturers and transport companies are the weaker link. Expansion is better for equities than recession, but the 71.1 price signal is unfavourable for long-dated bonds and rate-sensitive equities.
Opportunity and risk
The opportunity is a broader industrial recovery if new orders keep growing and delivery times remain stable. The risk is that companies accumulate inventory just as energy and raw materials become more expensive, causing profit to grow more slowly than revenue. The next catalyst is the US services Purchasing Managers’ Index on 3 September, which will show whether price pressure extends to the larger part of the economy.
3 Europe and Lithuania
Euro-area inflation rose to 3.3%, but slower services prices show that energy is carrying most of the shock
Facts
Eurostat’s preliminary estimate showed annual euro-area inflation rising from 2.9% to 3.3% in August, while prices increased 0.4% over the month. Energy was 14.3% dearer than a year earlier, compared with 10.3% in July. Inflation excluding energy remained 2.2%, while the measure excluding energy, food, alcohol and tobacco slowed from 2.5% to 2.4%. Services inflation eased from 3.3% to 3.0%. Lithuania recorded 5.8%, the highest rate among the 21 euro-area countries.
Why it matters
The fact is that headline inflation worsened while the domestic component did not accelerate. Our interpretation is that a new energy shock can temporarily lift inflation even as services and the underlying measure slow. This gives the European Central Bank a dilemma: cutting interest rates quickly could amplify the energy effect, while keeping them high for longer would weaken credit, housing and investment.
Portfolio impact
Higher prices can help energy companies, but they pressure euro-area bonds, property companies and heavily indebted businesses. For Lithuanian households, 5.8% inflation erodes the purchasing power of income; heating was 39.7% dearer than a year earlier, petrol 27.5% and diesel 37.9%. A stronger euro could soften the cost of dollar-priced energy imports, while a weaker currency would amplify the effect.
Opportunity and risk
The opportunity is a rapid normalisation in energy prices: slowing services and underlying inflation could then allow markets to reconsider lower interest rates. The main risk is that expensive energy feeds through to transport, goods and wage demands, turning a temporary shock into a broader one. The next signals are September energy prices, the euro and European Central Bank comments on whether the 3.3% reading changes its assessment.
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4 Corporate results
Dell booked $60.9 billion of AI-server orders, but cash flow shows that rapid growth is not free
Facts
Dell Technologies, a maker of servers, data-storage and computer equipment, reported record quarterly revenue of $47.0 billion, up 58% from a year earlier. AI-server orders reached $60.9 billion, quarterly revenue from those servers was $16.4 billion and the backlog was $95 billion. The company raised its full-year revenue forecast from $167 billion to $192 billion, but operating cash flow fell 13% to $2.225 billion.
Why it matters
The results confirm that artificial-intelligence investment is more than an equity-market narrative: companies are ordering servers, networks, storage and power infrastructure. Event → more data-centre equipment orders → higher supplier revenue → broader benefits for semiconductors, cooling and electricity equipment. Yet weaker operating cash flow shows that fast order growth ties up capital and cannot be assessed from revenue alone.
Portfolio impact
A $95 billion backlog improves visibility for server, memory, networking, electricity, transformer and cooling suppliers. It can support technology and industrial sectors even in a slower economy. The riskier part consists of highly valued companies whose prices already assume a long period of rapid growth. If the 4.79% yield persists, the present value of future profits falls even when operating results improve.
Opportunity and risk
The opportunity is for the backlog to become revenue without a significant loss of margin, while AI-infrastructure demand spreads across more suppliers. The main risk is that component, energy or financing costs rise faster than customer prices, leaving cash flow behind reported profit. The next catalyst will be the results discussion and later quarters, showing how much of the $60.9 billion of orders is actually delivered and paid.
5 Asian inflation
South Korean underlying prices rose 3.4%, so strong technology exports do not yet permit urgent rate cuts
Facts
South Korean consumer prices rose 0.2% over the month and 3.1% over the year in August. Prices excluding food and energy increased 3.4% over the year, while the group of frequently purchased goods and services was 3.2% dearer. Fresh food, by contrast, fell 6.7%. The figures were released today before 07:00 Lithuanian time, making them a new signal for Asian markets rather than a repeat of yesterday’s session.
Why it matters
Cheaper fresh food helps consumers, but the 3.4% underlying price increase matters more for central-bank decisions because it points to broader and more persistent pressure. Event → underlying inflation remains high → interest-rate cuts become harder → domestic credit and consumption recover more slowly. Strong semiconductor exports may improve company revenue without immediately easing financing conditions across the economy.
Portfolio impact
Higher interest rates may support Korean banks’ interest income, although the risk of weaker loans also rises. A 3.4% underlying inflation rate is unfavourable for property, consumer and heavily indebted companies. Global chip demand and the exchange rate matter more for technology exporters: a weaker won raises the local value of foreign revenue but also makes imported energy dearer, so the effect is not one-way.
Opportunity and risk
The opportunity is for underlying inflation to follow cheaper food lower over the next few months, while export growth allows the economy to avoid a sharp slowdown. The risk is that the oil jump lifts import prices and arrests that decline. The nearest catalysts are Bank of Korea communication, September energy-import prices and new semiconductor export data, which will reveal the balance between growth and inflation.
6 Asia-Pacific
Australian GDP grew 0.4%, but cautious households and lower investment reveal an uneven economic pace
Facts
Australian gross domestic product rose 0.4% in the second quarter and was 2.1% higher than a year earlier. Household consumption increased 0.4%, while private business investment fell 0.5% over the quarter despite remaining 10.4% above its year-earlier level. Exports rose 0.8%, and net trade added 0.1 percentage point to quarterly growth. Employee compensation increased 1.5%, while the saving ratio moved from 6.4% to 6.5%.
Why it matters
The figures show growth without overheating. Consumers increased spending cautiously, and business investment fell after an earlier surge in data-centre expenditure. Event → the economy grows but demand is not uniformly strong → the central bank has no clear reason for aggressive tightening → a 1.5% rise in employee compensation nevertheless prevents it from ignoring services inflation. This is a balanced rather than wholly positive signal.
Portfolio impact
Moderate growth is better than recession for Australian banks and consumer companies, but heavy borrower costs and cautious spending limit revenue growth. The 0.8% export expansion helps commodity producers, although their income also depends on Chinese demand and raw-material prices. Growth supports the Australian dollar, while weaker investment and uneven domestic demand provide a counterweight.
Opportunity and risk
The opportunity is for consumption and investment to strengthen gradually without a new inflation surge, allowing the economy to grow without more interest-rate pressure. The risk is an external energy and trade shock that simultaneously raises import costs and weakens household purchasing power. The nearest catalysts are Australian inflation and labour-market figures, together with Chinese demand indicators that shape commodity exports.
Today’s portfolio compass
Growth is real, but the energy shock and high interest rates set its price
Today’s facts form a clear tension rather than a single direction. Manufacturing is expanding in the US and euro area, Dell’s $60.9 billion of AI-server orders confirms real investment demand, and Australia avoided recession. This supports revenue for industrial, technology-infrastructure and selected commodity suppliers. Yet the escalation between the US and Iran lifted oil to $95.18, the US 10-year yield to 4.79%, while energy pushed euro-area inflation to 3.3%. The two main risks are more expensive financing and costs passing through to consumer prices. Slower euro-area services and underlying inflation, together with firm corporate orders, provide the counterweight. The portfolio question is therefore not whether growth exists, but whether company profits can rise faster than energy and interest costs.
Manufacturing expansion and AI-infrastructure orders support industrial, server, electricity and cooling supply chains.
$95.18 oil and a 4.79% yield raise costs for bonds, transport, housing and highly valued equities.
Slower euro-area services inflation at 3.0% reduces the risk that the energy shock has already become a broad price wave.
Important information. This review is general information, not personalised investment advice, and it does not promise future returns. Consider decisions in light of your own objectives, risk tolerance, time horizon and total portfolio.
