Global financial markets experienced severe turbulence on Thursday as geopolitical risks, tech giant earnings reports, and major central bank monetary policy adjustments converged to reshape investor sentiment. While the escalation in US-Iran military confrontation was accompanied by undercurrents of diplomatic negotiation, its impact on the energy markets has already materialized. Despite delivering impressive quarterly results, Oracle triggered a sell-off in capital markets due to its massive capital expenditure plan. Meanwhile, the European Central Bank unexpectedly initiated a rate-hike cycle, attempting to find a new equilibrium between inflation and growth.
In the Middle East, the US military and Iran implemented mutual air strikes for two consecutive days, rapidly escalating tensions. The US Central Command confirmed defensive strikes against military reconnaissance and air defense facilities within Iran, while the Islamic Revolutionary Guard Corps claimed to have destroyed multiple US base targets in the region, leading to Kuwait temporarily closing its airspace and Bahrain sounding air raid sirens. More critically, Iran announced it would block the Strait of Hormuz, a move that directly ignited international oil prices. Although subsequent reports indicated that the US had successfully escorted a large number of merchant vessels and peaceful negotiations were still advancing, market concerns regarding supply disruptions remained significant. Consequently, international crude oil prices briefly surged past $93 in the early session before retreating amid news of de-escalation in negotiations. Both Brent and WTI crude oil futures saw varying degrees of pullback, reflecting the market's complex interplay amidst the standoff.
On the US equity front, Oracle's earnings report presented a classic mixed picture. The company's fourth-quarter revenue and profit both exceeded Wall Street expectations, with cloud infrastructure revenue achieving nearly double-digit growth. The total remaining performance obligation surged by over three times year-on-year, indicating robust demand in the artificial intelligence sector. However, the price supporting this high growth was massive capital investment. Financial statements showed a significant year-on-year increase in fiscal year capital expenditure, while free cash flow turned negative. Furthermore, the company plans to raise approximately $40 billion through debt and equity financing over the next year for data center construction. This strategy of sacrificing short-term cash flow for AI infrastructure sparked deep investor concerns regarding financial sustainability, particularly given that a portion of its orders is highly concentrated among a single client. Consequently, the stock price plummeted in after-hours trading, significantly underperforming the broader market indices.
In Europe, policymakers adopted a more hawkish stance. The European Central Bank officially announced an increase in the deposit facility rate to 2.25%, marking the first rate hike in three years. Policymakers defined this as a preventive measure against inflationary pressures driven by energy price shocks, aiming to stabilize market expectations rather than merely responding to already runaway price trends. While the current Eurozone inflation rate remains high, economic fundamentals are not firm; weak factory orders in Germany and potential deterioration in manufacturing activity render this decision controversial. Some argue that raising rates amidst economic stagnation could constitute a policy error, but internal central bank sources emphasize that the global nature of this energy shock necessitates action. The market currently widely anticipates additional rate hikes within the year, with the next decision potentially arriving in the autumn.
Looking ahead, the convergence of these three forces will continue to dictate market direction. The trajectory of the Middle East situation will determine the duration of the energy premium, while it remains to be seen whether the financing wave among tech giants will become an industry norm. Additionally, the ECB's preemptive rate hike provides a new policy benchmark for other major economies. With the upcoming US non-farm payrolls report and Federal Reserve interest rate meeting, global capital flows and asset allocation logic may soon enter a new window for adjustment.
