Rising oil prices weigh on US stocks ahead of Big Tech results

By Lawrence Delevingne, Johann M Cherian and Gregor Stuart Hunter

July 22 (Reuters) - Oil prices surpassed $95 per barrel on Wednesday as tensions intensified in the Middle East, pressuring U.S. equities ahead of key Big Tech earnings, while the dollar dipped against other major currencies.

Brent crude prices were last up around 3% and touched their highest in six weeks on concerns about supply disruptions.

That came after four oil tankers carrying Saudi crude to Asia reversed course in the Red Sea following threats of attack from Yemen's Iran-aligned Houthis, dampening hopes that the end to the recent spike in tensions could be imminent.  

On Wall Street, the Dow Jones Industrial Average was little changed, while the S&P 500 fell 0.1% and the Nasdaq Composite dropped about 0.4%. 

"Two weeks ago, oil prices were going down, everybody was saying it was going to go back to $70 or $60 a barrel, and now (Hormuz) is closed again, so oil prices are going up, and everybody is saying it is going to go to $120," said Kevin Thozet, a member of the investment committee at Carmignac.

"Clearly, that's what is driving markets these days more than anything else," Thozet added.

GLOBAL GROWTH IN FOCUS

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

Also fuelling uncertainty were fresh tariff threats by U.S. President Donald Trump, who said all generic drugs brought into the U.S. will carry a 0% tariff for two years from August 1, after which the rate will rise to 100% for one year and 200% thereafter.

The administration slapped a 50% tariff on some Canadian goods earlier this week.

The MSCI All-World index was marginally higher on the day, kept afloat by a 0.7% rise in Europe's STOXX 600. 

Market focus will turn to earnings after Wednesday's closing bell from Alphabet, which is facing 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.

Chip stocks that have been key drivers of this year's AI-driven rally, such as Micron Technology and Nvidia, dropped 1% and 0.3% in early trading, respectively. 

"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.

YEN BOUNCES OFF 40-YEAR LOWS 

The Japanese currency found its footing at 163 per dollar after hitting a new 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 on Wednesday that the government remains ready to take "decisive action" in currency markets if needed, while refraining from commenting on specific foreign-exchange levels. 

The battered yen and soaring oil prices pushed Japan's imports to a record high in June, though exports also topped expectations, helped by booming demand from AI-related data centres - and a weak currency that continues to boost overseas sales.

Higher energy costs are complicating the work of central bankers who have also grown cautious in offering an outlook for monetary policy. The European Central Bank is expected to announce its verdict 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 borrowing costs 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.

The yield on the U.S. 10-year Treasury note ticked up 1 basis point to 4.64%, after having touched a two-month high in the previous session. The focus will be on a $13-billion auction of 20-year bonds later in the day.

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