From the studio

Podcast: Jump Start | European and US PMIs, and more earnings (7 mins)
Podcast:Across the Pond: UK politics in flux, on Apple and Spotify (21 mins)
Video: CIO Monthly | Broaden beyond AI for more growth opportunities (3 mins)

Thought of the day

Brent crude oil prices briefly topped USD 90/bbl on Monday for the first time in more than five weeks, after the US and Iran engaged in a series of tit-for-tat strikes over the weekend, with US Central Command announcing its ninth consecutive night of strikes on Sunday.

The latest developments in the Middle East are weighing on risk sentiment already weakened by the sell-off in chipmakers over the past week. The new AI model released by China’s Moonshot, which delivers performance that rivals some top-tier models, added to investor anxiety over the durability of capex growth.

But while market volatility may pick up as investors assess the ongoing risks, we see a constructive macro and earnings backdrop that should continue to support global equities in the coming months.

The US remains keen to resume peace talks. The situation in the Middle East is fluid, and risks of further hostilities are elevated. Strikes on vessels transiting through the Strait of Hormuz have resulted in a substantial drop in flows through the waterway, and a re-tightening oil market remains a risk to the equity rally. But US Secretary of State Marco Rubio reiterated that the US remains open to a diplomatic solution, and Iran said it has received “some proposals” from mediators on the war. W e think both sides are incentivized to avoid a return to full-out war, as a prolonged closure of the waterway would be a drag on the US economy and deprive Iran of a key source of income. While shipping confidence and oil production may take longer than expected to be fully restored, we expect limited pass-through to core inflation, keeping central banks from tightening aggressively. This means AI infrastructure investment and earnings growth should remain key drivers of the equity market.

AI demand remains robust despite risks. Without commenting on individual securities, we believe Moonshot’s Kimi K3 model does not necessarily have a negative readthrough for AI infrastructure, as its costs are comparable to those of frontier models. The release, together with many other recent new models with competitive capabilities, however, underscores the question on whether frontier models can sustainably capture the economic value of growing AI demand. This means that while we continue to expect strong growth in AI demand, uncertainty over capex growth beyond 2027 may keep investors on edge. Results from TSMC and ASML made clear that demand for AI infrastructure remains strong, but we think investors should ensure a more balanced exposure to tech as the AI growth story continues to evolve.

Strong overall earnings growth should provide further support. Beyond semis, the second-quarter earnings season has also got off to a strong start, with results so far marked by solid earnings beats and guidance. While only about one-tenth of the S&P 500 companies have reported, nearly 90% of them have beaten earnings per share estimates, with the median beat rate coming in at an impressive 8.8%. Both figures are much better than historical averages. More specifically, banks posted strong loan growth and fee income, while others reported resilient consumer demand and spending. We forecast 28% earnings per share growth for the S&P 500 for the three-month period, contributing to a profit increase of 20% for the whole of 2026.

So, we see room for global stocks to move higher amid strong profit growth. The wide gaps between individual stock performance and ongoing risks related to geopolitics and inflation, however, mean that investors should ensure diversified exposure. This means considering more defensive areas of the tech sector as well as other global markets that offer appealing opportunities, including Europe and Asia.