Asia wrap: Tech rebound loses altitude as alphabet and $100 Oil loom

Tech rebound loses altitude

Asia’s technology rebound began the session with momentum but gradually lost altitude as investors looked beyond the relief rally and towards the next major test of the AI boom. South Korea and other technology-heavy markets held onto gains, but the early enthusiasm faded as Nasdaq futures turned lower and traders became reluctant to add risk ahead of Alphabet’s earnings.

The mood was cautious rather than outright defensive. The recent semiconductor rebound has restored some confidence after the sharp unwind in momentum, but the market is still flying through turbulent air. Alphabet’s results after the US close will provide the clearest indication yet of whether the enormous sums being spent on artificial intelligence are beginning to generate returns quickly enough to justify the capital bill.

Alphabet has indicated that annual capital expenditure could rise to $190 billion, more than double its 2025 spending. That turns the earnings release into something larger than a quarterly check on advertising and cloud revenue. Investors will be inspecting the AI construction site to determine whether the foundations are producing future earnings or whether costs, depreciation and power demand are rising faster than monetization.

The difficulty is that expectations are already sky high. A conventional earnings beat may not be enough if the company raises spending again without providing convincing evidence that AI revenues are accelerating. The market needs hyperscalers to keep buying chips, building data centres and expanding capacity because much of the semiconductor rally rests on that spending continuing. At the same time, investors increasingly want proof that the builders are not simply feeding an ever more expensive machine.

This explains why the Asian technology rally struggled to hold its early pace. The AI thesis has not broken, but it is being asked to carry more weight. Recent gains have reflected both renewed optimism and a violent reversal in previously crowded bearish positioning. Alphabet now has to turn that rebound into an earnings story.

Oil is making that task considerably harder. Brent has climbed into the mid-$90s after surging nearly 30% in July, with both the United States and Iran showing little appetite for an immediate return to negotiations. Hormuz remains the central export chokepoint, while renewed Houthi threats in the Red Sea are placing pressure on the alternative route.

The oil market increasingly resembles a building with two emergency exits and smoke gathering around both doors. Hormuz remains the route that matters most, but the Red Sea can no longer be treated as a dependable pressure-release valve if shipping threats continue to escalate.

In this environment, Brent above $100 is no longer a remote scenario. Western inventories are already running close to tank-bottom levels, leaving the market with little room to absorb a prolonged disruption. China’s softer consumption and large stockpiles may slow the initial advance, but they are unlikely to offset a sustained regional supply shock if global inventory buffers continue to erode.

The cross-asset implications are beginning to spread. Higher oil is lifting inflation expectations and keeping Treasury yields near two-month highs, tightening financial conditions even as headline equity indices remain supported. The AI complex may still provide enough earnings strength to hold the major benchmarks together, but the broader market is being forced to bear the burden of higher energy costs and a higher cost of capital.

That creates an unusually narrow form of resilience. Semiconductor and hyperscaler beneficiaries may continue to perform, but companies without direct exposure to the AI investment cycle are more vulnerable to higher yields, weaker margins and softer consumer demand. The market is not ignoring the oil shock; it is sheltering in the few sectors investors still believe can outrun it.

Foreign exchange reflects the same divide. Ordinarily, a worsening geopolitical backdrop might favour the yen and Swiss franc. Instead, investors continue to prioritize yield, leaving both low-rate currencies under pressure and being used as funders for carry trade enthusiasts. High energy prices are keeping global rates elevated, while the Bank of Japan and Swiss National Bank remain well behind the tightening curve.

Reports that Bank of Japan officials are open to raising rates faster than economists expect helped the yen strengthen briefly. However, the wider interest-rate gap still points towards USD/JPY remaining supported unless the BoJ delivers a more forceful policy signal. The lack of intervention during Japan’s recent public holiday has also encouraged traders to press the move, with the 164 to 165 area potentially coming into view ahead of the July 31 meeting.

USD/CHF may offer a cleaner funding-carry expression. The Swiss National Bank appears comfortable with a weaker franc and is unlikely to respond with the scale of intervention previously seen from Japan. Higher global yields widen the rate differential against Switzerland, while elevated energy prices reinforce demand for the dollar.

The dollar remains well supported in this environment because it offers both yield and liquidity, while the Norwegian krone provides a more direct way to express the energy theme and is my preferred carry-trade vehicle.

Asia’s session ultimately delivered a warning rather than a reversal. The technology rebound remains alive, but it is approaching an important inspection point just as oil places another obstacle across the runway. Alphabet must now show that the AI spending boom is producing returns, while the energy market must avoid turning a regional disruption into a global supply shock. For now, the market is still airborne, but the margin for error is becoming thinner.