Chip selloff undercuts global rally sparked by oil drop

Stock markets across Europe and Asia rallied on Monday as a pause in fighting between the United States and Iran sent oil prices tumbling, offering investors their first sustained reprieve from weeks of escalating geopolitical tension in the Persian Gulf.

Oil Drop Fuels Risk Appetite

Brent crude futures fell as much as 6% to around $90 a barrel on Monday after Washington and Tehran each paused military strikes over the weekend, following nearly two weeks of continuous exchanges of fire. The drop marked a sharp reversal from late last week, when oil had been trading above $100 a barrel amid intensifying conflict.reuters+2

The STOXX 600 climbed 0.8% in early European trading, with travel and leisure stocks leading gains as lower fuel costs brightened the outlook for airlines. Lufthansa Deutsche Lufthansa AG and IAG International Consolidated Airlines Group, S.A. each rose 3.7%, while Ryanair ↗ 1.09% added 3.4%. S&P 500 futures gained 0.8% and Nasdaq futures jumped 1.4%.kfgo+1

The pullback in crude helped 10-year Treasury yields fall 4 basis points to 4.63% and nudged the dollar lower against both the euro and the yen. Gold climbed 1.4% amid the decline in yields.reuters

Diplomatic Window, Not a Deal

The rally reflected cautious optimism rather than conviction that the conflict is over. A senior Iranian official told Reuters that Tehran would halt attacks if Washington did the same, but no formal ceasefire agreement has been reached. National Security Adviser Mike Waltz said on NBC's "Meet the Press" that President Trump was providing "some space for talks" and that negotiations were continuing "at all levels".cnn+1

The Strait of Hormuz, through which more than a fifth of global oil flows typically pass, remains largely blocked. Maritime traffic through the waterway has shrunk from more than eight million barrels per day in early July to less than two million in recent days, according to The Economist News Corp ↗ 2.42%. Houthi threats to Red Sea shipping routes have added further risk.economist+1

A Pivotal Week Ahead

Monday's relief proved partial. By the close of U.S. trading, a selloff in semiconductor stocks — triggered by a report that China had begun manufacturing advanced lithography machines — dragged the Nasdaq Composite lower, even as falling oil lent broader support.wtvbam

Investors now face a gauntlet of events: a Federal Reserve interest rate decision on Wednesday, July 29, where markets are pricing roughly a one-in-three chance of a rate hike, and a wave of earnings from Microsoft ↗ 1.94%, Meta ↘ 0.22%, Apple ↗ 1.17%, and Amazon Amazon.com, Inc. ↘ 0.31%. "It's one of the least-telegraphed Fed decisions in years," Yahoo Finance noted, as officials weigh whether oil-driven inflation pressures warrant tighter policy.cbsnews+2