Oil Prices Dictate Market Sentiment as AI Rally Falters

The cooling of oil prices provided a necessary reprieve for battered technology stocks, fueling a nearly 5% surge in South Korea’s KOSPI index. Despite this rebound, the index remains 19% lower for July, reflecting deep-seated investor anxiety regarding the sustainability of the AI trade. Markets are bracing for a critical earnings season, questioning whether massive infrastructure spending will translate into tangible profit growth or if valuations have simply outpaced reality.

European markets face a more precarious outlook, with futures trading 0.3% lower as inflationary fears resurface alongside rising bond yields. In London, newly appointed Prime Minister Andy Burnham is attempting to reassure investors by adhering to existing fiscal rules. However, his initial signals triggered a sharp sell-off in sterling and government bonds, underscoring the fragility of the U.K. economic environment. Today’s focus shifts to incoming U.K. wage data and ZEW sentiment surveys, alongside quarterly reports from Julius Baer and Novartis.