Oil prices turn lower as Bessent says U.S. may have Iran deal "today or tomorrow"
Investing.com - A whipsawing Middle East conflict takes center stage once again as the new trading week gets underway. A key U.S. jobs report will be in focus later in the week, along with data tracking activity in the American manufacturing and services sectors. SpaceX will unveil its first quarterly earnings report since its historic initial public offering, while earnings from Advanced Micro Devices could shed some light on the state of the artificial intelligence boom.
Attention is now turning to the Middle East, where U.S. President Donald Trump called off a bombardment of Iran over the weekend, hinting at the framework of a fresh deal to reopen the Strait of Hormuz.
And so goes what has become an increasingly common cadence of brinkmanship and de-escalation in a war Trump began in conjunction with Israel in February. Trump previously set aside plans for a major intensification of an American assault on Iran in late July, although tensions in the Middle East have remained high, with worries growing that the conflict may even be spreading to other parts of the region.
Trump said in a social media post that the latest decision to refrain from heavy military action was precipitated by requests from Iran and other Middle Eastern countries, adding that the "perimeters" of an agreement to unblock the Strait of Hormuz -- a crucial waterway which Iran has effectively shuttered for months -- had been secured.
Notably, media reports out of Saudi Arabia suggested that the country’s de facto ruler Crown Prince Mohammed bin Salman had urged Trump to consider the "necessity of prioritizing dialogue" in order to avoid an expanded war.
However, as analysts at Vital Knowledge flagged, "we’ve been here before." A framework ceasefire deal signed in June was initially designed to end hostilities and reopen shipping in the Strait of Hormuz, but it was in effect for mere weeks before collapsing in the wake of Iranian strikes on commercial ships in the narrow conduit.
Brent crude futures, the global oil benchmark which has oscillated sharply on developments in the Middle East, dropped on Monday, but were well above pre-war levels.
Headlining the economic calendar this week will be the July U.S. jobs report, a figure which could sway the trajectory of Federal Reserve interest rate policy.
The U.S. economy is expected to have added 88,000 jobs last month, up from 57,000 in June, potentially suggesting unabated resilience in the American labor market. For months, incoming data has indicated that while employers are not hiring workers at an elevated clip, layoffs remain muted.
The unemployment rate is also seen at 4.2%, matching the prior month. However, recent numbers have suggested that Trump’s major immigration crackdown and more baby-boomer retirements have weighed on the number of available workers, with the size of the labor force declining by 720,000 from May to June. The participation rate, a gauge of the share of working-age people that are either employed or looking for a job, also sank to 61.5% in June, the lowest level since the COVID-hit days of March 2021.
Yet, overall, data is pointing to strengthening underlying demand in the broader U.S. economy, according to Thomas Ryan, Senior North America Economist at Capital Economics.
Against this backdrop, investors have been debating how the Fed chooses to approach interest rate decisions in the coming months. Policymakers can raise borrowing costs to help quell energy-fueled inflation, albeit at the risk of denting the labor market and the wider economy.
3. ISM manufacturing and services sector activity data
Beyond the jobs data, figures gauging manufacturing and services activity from the Institute for Supply Management will be in focus.
ISM’s purchasing managers’ index, a tracker of the U.S. manufacturing sector, is tipped to come in at 54.0 in July, compared to 53.3 in the preceding month. A reading above 50 denotes expansion in manufacturing, which makes up a little over 9% of the American economy.
In June, the measure slowed, due possibly to an easing in order front-loading by businesses eager to get ahead of potential supply chain snags caused by the Iran war.
Meanwhile, the U.S. services sector cooled in June, although employment recovered from a three-month bout of contraction. Services are critical for the American economy, as the sector makes up more than two-thirds of total U.S. economic activity.
19.7%. That’s how much shares of SpaceX have slumped since the blockbuster market debut of Elon Musk’s rocket company in June.
The stock, which began trading at $135, briefly soared above $200 following the IPO. Since then, it has lost some $1.2 trillion in market cap.
Driving the historic public offering was optimism around SpaceX’s plans to grow its Starlink satellite internet network, carry out exploration missions and possibly even launch artificial intelligence data centers into orbit. These would all depend on the company’s 400-foot-tall Starship rocket, enhancing scrutiny on a delayed lift-off of a test flight last month.
Investors may likely be keen for Musk to provide an update on Starlink and AI spending when SpaceX reports its first results after the close of U.S. markets on Tuesday.
Amid a bevy of other high-profile earnings this week, Advanced Micro Devices will be under the microscope.
A rival of Nvidia in the race to develop cutting-edge AI chips, AMD has become a key bellwether for the boom in expenditures on the infrastructure needed to power the nascent technology.
Mega-cap tech names have laid out plans to spend expanding sums on the chips and data centers needed to underpin their AI ambitions. According to Bloomberg News, the big U.S. hyperscalers -- Google-owner Alphabet, Facebook-parent Meta Platforms, software titan Microsoft, and e-commerce behemoth Amazon -- have now committed to nearly $2.4 trillion in AI-related expenditures over the coming years.
In May, AMD predicted that the accelerating outlays will push revenue in the second quarter up to $11.2 billion, plus or minus $300 million. Sales stood at $10.25 billion in the first three months of the year.
Chipmaking stocks rebounded last week, although these stocks have been weighed down in recent weeks by concerns around the sustainability -- and eventual profits -- of the AI spending spree. Shares of AMD have fallen by over 8% over the last one-month period, but have more than doubled in value so far this year.
Elsewhere on the weekly earnings slate, data analytics group Palantir will report on Monday, followed by industry bellwether Caterpillar and burger chain McDonald’s on Tuesday. Weight-loss drugmaker Eli Lilly is set to unveil returns on Wednesday, as well as digital memory firms Sandisk and Western Digital.
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