Oil prices jump on US-Iran strikes, stocks flat ahead of Big Tech results

By Lawrence Delevingne, Johann M Cherian and Gregor Stuart Hunter

July 22 (Reuters) - Oil prices rose to a six-week high on Wednesday as the U.S. and Iran traded strikes, further threatening energy shipping in the Middle East, while U.S. equities were flat ahead of key Big Tech earnings.

Brent crude prices settled up 3.3% to $94 per barrel, reaching levels not seen since early June. A brief détente between the U.S. and Iran ended this month, once again restricting tanker movement in the key Strait of Hormuz. U.S. President Donald Trump threatened more attacks on Iran's infrastructure.

Nearly five months of war have depleted global stockpiles and stoked inflation worldwide. Shipping disruptions could worsen following threats of attack from Yemen's Iran-aligned Houthis on shipping in the Red Sea, another chokepoint in the Middle East. 

Four oil tankers carrying Saudi crude to Asia reversed course in the Bab el-Mandeb Strait following the Houthi threat.

The closure of both Hormuz and Bab el-Mandeb would disrupt shipping routes for more than a quarter of the world's oil and gas. Clearing both of those logjams would strain the U.S. military, analysts said. 

"Higher oil prices are the biggest near-term macro risk," said Sameer Samana, head of global equities and real assets at the Wells Fargo Investment Institute. "Escalating Middle East tensions have pushed crude prices higher, raising concerns that inflation could reaccelerate and delay interest-rate relief."

On Wall Street, the Dow Jones Industrial Average was little changed, while the S&P 500 dipped 0.1%, and the Nasdaq Composite fell 0.57% amid weakness in chip shares. 

Escalating hostilities could reignite inflation, drive interest rates higher and knock global growth to as low as 1.3%, down from 2.9% last year, World Bank chief economist Indermit Gill told Reuters.

ALPHABET KICKS OFF TECH EARNINGS

The stock market's focus turned to earnings after Wednesday's closing bell from Alphabet, which faces heightened scrutiny over the delayed launch of a key AI model, and Tesla, which is widely expected to report its first quarterly cash burn in over two years. Google quarterly cloud revenue growth beat expectations.

Chip stocks that have been key drivers of this year's AI-driven rally, such as Micron Technology and Nvidia, were mixed, with Micron down 1% on the day and Nvidia up 2%. Shares of major hyperscalers have come under pressure in recent months due to worries about growing capex. 

"Even the slightest doubt about the monetization of artificial intelligence or the return on infrastructure spending could call into question the main driver of the market rally over the past nearly two years," said John Plassard, head of investment strategy at Cité Gestion.

Trump's fresh tariff announcements also fueled uncertainty. He said all generic drugs brought into the U.S. will carry a 100% tariff beginning in August 2028, rising to 200% a year after that. The administration said it would impose a 50% tariff on some Canadian goods earlier this week.

The MSCI All-World index was marginally higher on the day, as Europe's STOXX 600 rose 0.6%. 

YEN BOUNCES OFF 40-YEAR LOWS 

The Japanese currency found its footing at 163 per dollar after hitting a 40-year low on Tuesday as investors weighed the measures officials would use to shore up the drooping currency.

Japanese Finance Minister Satsuki Katayama said the government remained ready to take "decisive action" in currency markets if needed, while refraining from commenting on specific foreign-exchange levels.

The dollar dipped from a one-week high on Wednesday after four straight daily advances.

Higher energy costs are complicating the work of central bankers who have grown cautious in offering an outlook for monetary policy. The European Central Bank is expected to announce its rate decision on Thursday, and the U.S. Federal Reserve's decision is due next week.

Both central banks are expected to leave borrowing costs on hold this month, but traders expect rates in the U.S. and the euro zone to rise by at least 25 basis points each by the end of the year, LSEG-compiled data showed.

Interest-rate-sensitive 2-year U.S. Treasury yields climbed to a 17-month high, while the yield on the U.S. 10-year notes rose 3.26 basis points to 4.66%, a day after touching a two-month high.

(Reporting by Lawrence Delevingne, Gregor Stuart Hunter and Johann M Cherian; Editing by Amanda Cooper, Anil D'Silva, Jan Harvey, David Gaffen, Rod Nickel and David Gregorio)