US Equities Decline on Geopolitical Tensions and AI Spending Concerns; Oil Surges; ECB Holds Rates

Lead US equity futures are broadly lower this morning, with Nasdaq futures down 1.33% and S&P futures down 0.92%. Escalating geopolitical tensions in the Middle East have pushed WTI crude up 4.69% to $90.90. Concerns over rising AI spending, following Alphabet's earnings, are also weighing on sentiment. The ECB held key rates unchanged as expected. Session narrative US equity futures are trading lower in pre-market, extending declines from earlier in the session. Nasdaq futures are down 1.33%, while S&P futures are off 0.92%. The Dow futures also show a decline of 0.98%. This downturn is largely attributed to ongoing geopolitical tensions in the Middle East, which have driven WTI crude prices up 4.69% to $90.90 and Brent crude up 2.22% to $86.74. The VIX, a measure of market volatility, has surged 12.5% to 18.72, reflecting increased market uncertainty. The US 10-year yield is up 1.03% to 4.71%, while the US Dollar Index is up 0.28% to 101.41. Gold is down 1.93%. Corporate earnings are also in focus. Alphabet shares are down 5.1% after its earnings renewed concerns over rising AI spending, despite beating revenue estimates. Tesla shares are down 7.5% following its Q2 results, which included increased capital and operating expenditure. In contrast, RTX is up 5.3% after reporting strong Q2 results and raising its full-year guidance, citing robust demand in defense and commercial aftermarket. Honeywell Technologies also beat Q2 estimates and raised guidance, contributing to its 1.6% gain. T-Mobile stock fell after reporting mixed Q2 results, with earnings beating expectations but revenue missing. The European Central Bank left key rates unchanged as expected, with President Lagarde noting that the geopolitical situation remains fragile and higher energy prices will weigh on real incomes, posing upside risks to inflation. Cross-asset check Equity futures are broadly negative. S&P futures are down 0.92%, Nasdaq futures are down 1.33%, and Dow futures are down 0.98%. The VIX is up 12.5% to 18.72. In fixed income, the US 10-year yield is up 1.03% to 4.71%, and long-duration Treasuries (TLT) are down 0.82%. In currencies, the US Dollar Index is up 0.28% to 101.41. Commodities are mixed, with WTI crude up 4.69% to $90.90 and Brent crude up 2.22% to $86.74. Gold is down 1.93% to $4071.9, and silver is down 3.25%. Natural gas is up 1.95%. Themes & continuing stories Geopolitical tensions in the Middle East continue to be a dominant theme, driving oil prices higher and contributing to market uncertainty. Corporate earnings season is in full swing, with companies like Alphabet and Tesla influencing market sentiment with their results and outlooks. The European Central Bank's decision to hold rates underscores ongoing concerns about inflation and economic stability, with President Lagarde emphasizing the fragility of the geopolitical situation and its potential impact on energy prices and inflation. What’s ahead President Trump stated that the US will hold Iran responsible for Houthi attacks on oil tankers in the Red Sea. Honeywell Technologies CEO anticipates the Middle East situation to remain stable without significant escalation. ECB President Lagarde indicated that energy inflation is likely to keep inflation well above target into the first half of 2027.