WASHINGTON, July 29 — United States (US) stocks fell while oil prices and US Treasury yields climbed as fighting in the Iran war resumed, just hours ahead of the US Federal Reserve's (US Fed) highly anticipated interest rate decision, due later on Wednesday.
The US Fed is widely expected to hold rates steady, but traders are pricing in roughly a 34 per cent chance of a hike as rising oil prices reignite concerns about inflation, which remains well above the American central bank's two per cent annual target. Markets are now fully pricing in a rate hike by the US Fed's September meeting.
"The bottom line, from a market point of view, is if oil prices remain elevated in September, the US Fed will conclude the oil shock has lasted long enough to demand a rate hike, or hikes.
"The market has also concluded some participants will make the case for hikes today...and there is a not-insignificant chance they will convince a majority of the voters to back them," said FHN Financial chief economist Chris Low.
Oil prices jumped more than six per cent after major airstrikes resumed in the Middle East, dashing hopes for an imminent end to the Iran war. The rally was compounded by industry data showing a drop in US crude inventories.
Uncertainty over the outcome of Wednesday's US Fed meeting is also high, given chairman Kevin Warsh's preference for offering less forward guidance on the US Fed's likely monetary policy path.
The yield on benchmark US 10-year notes rose 2.45 basis points to 4.629 per cent, from 4.604 per cent late on Tuesday.
The Dow Jones Industrial Average fell 1.37 per cent to 52,024.98, the S&P 500 fell 0.62 per cent to 7,382.73, and the Nasdaq Composite fell 0.83 per cent to 24,670.21.
Earnings to set tone
Investors are also awaiting a wave of key earnings, with Microsoft and Meta due to report after the market close, followed later this week by Amazon.com and Apple.
Global markets have been volatile this month as investors question the sustainability of the AI spending boom amid signs that major US companies are deepening a web of artificial intelligence (AI)-linked investments and continuing to funnel billions into the technology at the expense of free cash flow.
"The pressure is shifting from spending plans to returns on investment. Investors want evidence that AI capex is generating revenues now, while also strengthening the future growth outlook," said HB Wealth chief market strategist Gina Martin Adams.
The scrutiny comes as competition from China intensifies, both in the race to develop advanced chips and in the rollout of cheaper AI models.
Expectations have grown so lofty that even a sixfold jump in SK Hynix's quarterly profit fell short, sending its shares tumbling 9.61 per cent.
South Korea's KOSPI, which has become emblematic of the wild swings in AI sentiment, fell nearly six per cent a day after sinking more than 10 per cent to a three-month low.
As a result, the Finance Ministry said today that Seoul will introduce additional curbs on single-stock leveraged exchange-traded funds, including a cap that could limit an individual's investment in such products to 20 per cent of their total investment assets.
The pan-European STOXX 600 index fell 0.21 per cent, while Europe's broad FTSEurofirst 300 index fell 0.28 per cent.
The MSCI All Country World Price index dropped 0.57 per cent to the lowest since June 26.
