MPC Markets Morning Call — 24 July 2026: Oil Tops $100, Big Tech Burns Cash as War and AI Collide
Wall Street sold off sharply overnight as Brent crude surged above $100 a barrel for the first time since late May, driven by Houthi strikes on Saudi tankers in the Red Sea. Alphabet and Tesla dragged the Nasdaq down 2.2% after both reported negative free cash flow, reigniting fears that the AI spending boom is consuming more capital than it generates. Treasury yields hit 18-month highs, rate hike expectations climbed, and ASX futures point to a weaker open this morning.
Escalating conflict in the Middle East drove Brent crude above $100 a barrel for the first time since May, sending Treasury yields to their highest levels in 18 months and stoking fresh inflation fears just days before the Federal Reserve meets. The S&P 500 fell 1.2% to 7,407.58, the Nasdaq dropped 2.2% to 25,137.69, and the Dow shed 1.0% to 51,711.29 — with Alphabet and Tesla leading losses after both reported negative free cash flow. Defence stocks bucked the trend, with Lockheed Martin surging 10.5% and RTX gaining 7.3% on raised guidance. Gold fell 2% as rising real yields crimped demand, while the U.S. dollar strengthened with USD/JPY pushing toward 164.00 — a new 40-year high. Australia was hit with a 12.5% tariff rate under new U.S. forced-labour trade policy, and ASX 200 futures fell 0.6% to 8,750.
The S&P 500 fell 1.2% to 7,407.58, the Nasdaq dropped 2.2% to 25,137.69, and the Dow lost 1.0% to 51,711.29, with the Mag-7 gauge posting its worst session since the April 2025 tariff meltdown.
Houthi strikes on two Saudi tankers in the Red Sea widened the Iran conflict, with Trump threatening “major military punishment” against Iran and hinting at a “massive attack.”
Brent crude surged 6.7% to $100.37 per barrel — crossing $100 for the first time since 26 May — while WTI jumped 5.5% to $91.91.
U.S. 10-year yields hit 4.70%, the 30-year real yield reached its highest since 2008 near 3%, and money markets now price a 35% chance of a Fed hike next week.
Alphabet raised its full-year capex guidance to $195–$205 billion and posted its first-ever quarterly cash burn, while Tesla tumbled 14.5% on negative free cash flow and weak margins.
ASX 200 futures fell 50 points (0.6%) to 8,750, Australia was hit with a 12.5% U.S. tariff under new forced-labour policy, and PMI data is due today.
Equities — Tech Rout Deepens on AI Spending Alarm
U.S. stocks ended deep in negative territory as the twin headwinds of surging oil and renewed AI spending anxiety collided. The S&P 500 slid 1.2% to close at 7,407.58, its worst session in a month. The Nasdaq Composite fell 2.2% to 25,137.69, and the Dow Jones Industrial Average shed 1.0% to 51,711.29. A gauge of megacap stocks posted its worst day since the April 2025 tariff-fuelled meltdown.
Communication Services and Consumer Discretionary were the hardest-hit sectors, each dropping more than 5%, dragged down by Alphabet (−6.9%) and Tesla (−14.5%). Alphabet raised its full-year capex guidance to $195–$205 billion and reported its first-ever quarterly negative free cash flow. Tesla reiterated more than $25 billion in capex while delivering weak auto margins and negative FCF for the first time in two years. “Alphabet is spending hundreds of billions of dollars as it looks to stay ahead in the AI arms race, but there is still a healthy degree of scepticism about the ability of these investments to generate a commensurate level of return,” said Russ Mould, investment director at AJ Bell.
On the positive side, Industrials gained 1.8%, led by defence contractors Lockheed Martin (+10.5%) and RTX (+7.3%), both of which raised full-year guidance as geopolitical tensions boost Pentagon spending. Honeywell Technologies was the top percentage gainer on the Dow, adding 5.7% after quarterly orders rose 16% year-on-year. After the bell, Intel surged more than 10% on revenue of $16.13 billion that crushed the $14.33 billion estimate, signalling its AI-fuelled turnaround is gaining real traction.
“The encouraging development is that this is still looking more like rotation than broad-based liquidation. We’re seeing relative strength in Industrials, Energy, and Healthcare — sectors where we remain overweight — as well as Utilities. That suggests capital is moving within the market rather than exiting it altogether. The bull market still deserves the benefit of the doubt, but this reinforces our view that markets were entering a bumpier period.”
Geopolitics — Houthi Strikes Widen the Conflict
The Middle East conflict took a dangerous turn after Iran-backed Houthis in Yemen struck two Saudi Arabian tankers in the Red Sea — the first attacks since the militia announced a blockade on Saudi vessels earlier this week. The strikes threaten to disrupt global oil flows at a second chokepoint alongside the Strait of Hormuz, where confirmed vessel crossings have already dropped 75% according to shipping tracker Kpler. An estimated 1.9 million barrels per day of Saudi west coast refining capacity is now exposed to potential Houthi missile hits.
President Trump responded forcefully, warning that “major military punishment will be inflicted upon Iran” if the Houthis attack again. He told Axios he is considering a “massive attack” and is “close to making a decision.” U.S. Central Command meanwhile completed a twelfth consecutive night of bombardment against Iran, while its naval blockade redirected nine commercial vessels. Tehran has retaliated by striking U.S. bases in Kuwait, Jordan and Bahrain.
The escalation pushed Brent crude above $100, sent Treasury yields to 18-month highs, and shifted money-market pricing — traders now see a 35% chance of a Fed hike next week, up from roughly 10% a week ago. “Escalating Middle East tensions have pushed crude prices higher, raising concerns that inflation could re-accelerate and delay interest-rate relief, maybe even cause the Fed to hike,” said Sameer Samana at Wells Fargo Investment Institute.
The president said the Houthis had “acted very responsibly” over the past year but were now “starting up again.” He framed the Houthis as a “Surrogate and/or Proxy of Iran” and warned that the U.S. would hold Tehran directly responsible for further strikes. The threat of a broader offensive adds a layer of uncertainty over oil markets heading into the weekend.
Energy, Commodities & FX
Brent crude futures surged 6.7% to $100.37 per barrel, crossing $100 for the first time since 26 May. WTI jumped 5.5% to $91.91. Oil is now up more than 40% year-on-year. PVM Energy analyst John Evans noted that rerouting Saudi shipments from Yanbu to China could more than double voyage times from 20 to over 50 days. UBS analyst Giovanni Staunovo warned that Middle East production recovery would be slower than markets expect because inbound vessel traffic remains subdued.
U.S. energy stocks rallied in response — Exxon Mobil rose 1.6%, Chevron 1.9%, and Diamondback Energy, Devon Energy, ConocoPhillips and Occidental Petroleum gained between 1.7% and 2.7%. U.S. gasoline prices surpassed $4 a gallon for the first time in a month, adding to consumer cost-of-living pressures.
Gold fell 2%, pressured by surging real yields — the 30-year U.S. real yield reached its highest since 2008, nudging 3%. The U.S. 10-year Treasury yield hit 4.70%, its highest in 18 months. The dollar strengthened, with USD/JPY shooting toward 164.00 — a new 40-year high. The euro slipped to a three-week low after the ECB held rates steady but left the door open to a September hike. The South African rand was the world’s worst-performing major currency, falling 3% after the central bank unexpectedly held rates. The 2-year Japanese government bond yield hit 1.50%, its highest since 1995.
Tariffs — Trump Rebuilds the Trade Wall
The U.S. imposed new forced-labour tariffs on imports from most major trading partners, effective Friday at 12:01 a.m. New York time. Goods from roughly 10 economies deemed to have adopted forced-labour prohibitions face 10% duties, while products from dozens of others — including Australia — face 12.5%. The timing ensures no gap with the expiring 10% global import tax that replaced the Supreme Court-struck reciprocal tariffs.
Fuel, food, fertilisers and goods covered by separate industry-specific levies or the North American trade agreement are exempt. India secured a 10% rate rather than the originally threatened 12.5%. Blake Harden at Ernst & Young warned: “There’s still a lot of uncertainty hanging out there. We still have the opportunity for a lot of tariffs this year.”
The new duties come alongside a separate 25% tariff on certain Brazilian goods and proposed levies on Canadian products under a never-before-used Section 338 authority. The administration also lashed out at the EU over its fine against Google and a state-backed loan to Airbus, warning these moves risk undermining transatlantic trade stability. For Australia, the 12.5% rate adds another cost headwind at a time when energy-driven inflation is already squeezing consumers and businesses.
U.S. equity holdings have surpassed real estate as a share of net financial wealth for the first time since World War Two, Goldman Sachs noted. Equity allocations among U.S. and Australasian households are approaching 50% of financial assets, surpassing dot-com era levels. The bank warned that higher exposure leaves households more vulnerable to a sharp correction, particularly when valuations are elevated and macro uncertainty is running high.
ASX Outlook & Day Ahead
Australian shares are set for a weaker open this morning. ASX 200 futures fell 50 points or 0.6% to 8,750, tracking Wall Street losses as oil above $100 reignites inflation concerns for the domestic economy. The new 12.5% U.S. tariff on Australian goods under the forced-labour policy adds a fresh headwind, particularly for exporters already navigating elevated energy and input costs.
The ASX faces a soft open with SPI futures pointing down 0.6% to 8,750. Oil above $100 will support energy names but weigh on consumer-facing and transport sectors. The new U.S. tariff announcement adds uncertainty for Australian exporters. Flash PMI data today will provide the first read on July business conditions across major economies.
- ASX Open (10:00 AEST) — Futures indicate a loss of around 50 points. Energy stocks should outperform on the oil surge; tech and growth names face headwinds from the Nasdaq selloff and rising yields.
- Flash PMIs — Japan, Eurozone, UK, US (throughout the day) — July manufacturing and services readings will test whether the global economy is absorbing the oil shock or buckling under it.
- Japan CPI (June, 09:30 JST) — Key for Bank of Japan policy expectations, with the 2-year JGB yield already at 1.50% — the highest since 1995.
- UK Retail Sales (June, 07:00 BST) — A gauge of consumer resilience amid rising energy costs and tighter financial conditions in the UK.
- U.S. Earnings: American Express, Verizon — AmEx results will signal consumer spending trends, while Verizon provides a read on defensive telecom positioning.
- ECB Chief Economist Philip Lane Speaks — Markets will parse his comments for further signals on whether a September rate hike is locked in after Lagarde left the door open.
