Morning Bid: Can markets handle more strait talk?

A look at the day ahead in European and global markets from Ankur Banerjee

After five months of tracking events in the Strait of Hormuz, investors are looking across the Arabian Peninsula as Iranian-aligned Houthis, who control areas near the Bab el-Mandeb strait in the Red Sea, open a new front in the crisis in the Middle East.

The escalating and widening conflict has sent Brent futures to $96 per barrel, the highest since early June, as investors worry about depleting stockpiles after Houthis declared a naval blockade against Saudi Arabia earlier this week. The threat has led to tankers changing course in the Red Sea, ship-tracking data showed.

Surging oil prices have revived fears of inflation, taking short-term Treasury yields to the highest in 17 months as traders wager a rate hike from the Federal Reserve could come soon. Traders are now fully pricing in a hike in September.

The European Central Bank is due to announce its policy decision later in the day, with the central bank all but certain to keep interest rates unchanged. The ECB though is likely to hold the door open to a rate hike in September, as a fresh jump in energy prices threatens to put more upward pressure on inflation.

While geopolitical tensions and inflation fears simmer, markets are also keeping an eye on earnings from tech bellwethers Alphabet and Tesla to gauge if the vast capital spending from AI hyperscalers is finally beginning to yield results.

The Google-parent reported its best-ever quarter of growth for its cloud computing unit, but that was not enough to satisfy investor appetite as the focus moved to higher capital spending plans for the year. The search giant now expects to spend between $195 billion and $205 billion, up from $180 billion to $190 billion.

That spells good news for Asian chipmakers, most of whom may end up pocketing billions to build that infrastructure. South Korea's KOSPI rose nearly 4%, led by SK Hynix and Samsung Electronics. European futures point to a muted open so the mood may darken soon as investors return to fretting about valuations, profit growth and returns on huge capital spending.

More earnings this week will provide a clearer picture of where we stand in the profitability vs capital spending tug of war.

Key developments that could influence markets on Thursday:

Economic events: ECB policy decision, euro zone consumer confidence data for July

(By Ankur Banerjee in Singapore)