Brent crude prices dropped to around $73 a barrel this week, reverting to levels last seen before war broke out in Iran in late February. This indicator carries enormous symbolic weight for investors, who have spent the past few months worrying about geopolitical risk and the dangers of a prolonged disruption to global energy supply.
With oil retreating by a further 8.5% this week, and peace negotiations underway, concerns shifted from inflation to the sustainability of the Artificial Intelligence (AI) boom. A softer oil price has given traders confidence that inflation has already peaked, but the world economy may still experience a hangover from the war.
But the story that had the biggest impact on markets this week was memory chips. Micron, one of the world’s few large-scale suppliers of advanced memory chips, reported a 15-fold jump in net profit for the third quarter, revenues that were up fourfold and a gross margin of around 85%.
The gains for Micron ironically contributed to pain for the Magnificent Seven club of American Big Tech stocks. Apple, down 7.6% for the week so far, was one of the major losers. The company has hiked prices on its MacBook and iPad lines because of surging memory and storage costs. Microsoft (down 6.9% for the week) also raised prices on its Xbox consoles.
In addition to raising hardware prices for consumers and enterprises, high DRAM (Dynamic Random-Access Memory) prices will increase costs for hyperscale companies such as Amazon, Alphabet, Microsoft and Meta as they increase AI-related infrastructure spending. This contributed to the tech profit taking in the US as investors weighed up whether AI investment will deliver commensurate returns.
At the time of writing, the Nasdaq composite was on course for one of its worst weeks of the year, down 4.4% as at Thursday’s close, while the Dow Jones Industrial Average, less exposed to megacap tech, was up around 0.7%, reflecting the positive effect of the lower geopolitical risk and inflation on valuations.
Although Hormuz traffic is far from normal and oil inventory rebuilds will take months, the oil price, at pre-war levels, is looking well beyond these factors. As long as the peace in Iran holds, markets will return to focus on fundamentals: Fed signals, earnings reports and whether the AI trade can justify its valuations. Just as was the theme in January and February… before the war started.
“This is a structurally more volatile flavour of tech than we saw in the Magnificent Seven for the past several years.”
– Julia Hermann, global market strategist, New York Life Investment Management
“The past few months have shown how quickly narratives can shift, how costly excess cash can become when markets move higher, and how single-stock selection represents both an opportunity and a risk.”
– Ulrike Hoffmann-Burchardi, UBS Chief Investment Office
Global News
- Brent crude erased its war-driven gains on Thursday, returning to pre-conflict levels as oil flows through the Strait of Hormuz rebounded. The recovery in supply has strengthened expectations that global oil markets will return to surplus, easing inflation pressures, although uncertainty over a final peace agreement and Iran’s proposal to levy transit fees through Hormuz could still disrupt the recovery.
- US-Iran negotiations progressed this week as the first round of talks concluded and further discussions were scheduled in Switzerland next week. US Secretary of State Marco Rubio completed a tour of the UAE, Kuwait and Bahrain, aimed at reassuring anxious allies about the interim peace agreement and telling Gulf allies on Thursday that Washington would not agree to a deal with Iran “at any price”. While momentum towards a broader peace agreement continues, disagreements over key terms and renewed security incidents in the Strait of Hormuz highlight the fragility of the process.
- The US authorised Iranian oil exports on Monday under a 60-day licence as part of the interim peace deal, marking a major reversal of sanctions policy and reinforcing expectations of increased global oil supplies. The move has drawn domestic criticism for weakening US economic leverage over Tehran. Separately, the Senate voted 50-48 on Tuesday to push Trump to end military operations against Iran or seek congressional authorisation. Although the bipartisan resolution is non-binding, it marks the first time since the 1973 War Powers Resolution that both chambers have voted to limit a president’s military action.
- Bullion dropped below $4,000 for the first time since November after the price fell more than 20% from its January peak, on expectations of higher interest rates and a stronger dollar. The dollar snapped a three-day winning streak late on Thursday, removing some pressure on gold following a sharp rally in the greenback.
- A surge in manufacturing orders lifted US business activity to its fastest pace in five months, with factory growth reaching its strongest level since May 2022, data released on Tuesday showed. S&P Global said brighter news from the Middle East had helped restore business confidence. However, service sector growth remained subdued, and employment declined across both manufacturing and services as firms cut costs amid persistently high materials prices.
- US consumer spending accelerated in May despite inflation rising to its highest level in more than three years, reinforcing expectations that the Fed will keep interest rates higher for longer. Bureau of Economic Analysis data released on Thursday showed the Personal Consumption Expenditures Price Index rose 4.1% year-on-year, while inflation-adjusted consumer spending increased 0.3%, indicating households continued to spend despite higher prices.
- UK PM Keir Starmer announced on Monday that he would step down after losing the support of his Parliamentary party, opening the door to Britain’s fifth prime minister since 2022 and seventh in the last decade. Andy Burnham emerged as the frontrunner after former Health Secretary Wes Streeting, widely regarded as his most likely rival, endorsed his candidacy, making a leadership contest less likely. Investors will now focus on the next government’s cabinet appointments, particularly the choice of chancellor, for signals on future fiscal and spending priorities.
- The AI infrastructure race is locking in decades of spending, with Meta and Microsoft driving future data centre lease commitments among the largest cloud companies to more than $850 billion over the next two decades, Bloomberg calculations showed on Wednesday. Meta added $79 billion in commitments last quarter, lifting its total to $182.9 billion, while Microsoft added $41 billion, bringing its total to $196.6 billion.
- Micron’s blowout results, along with bullish guidance for the upcoming quarter, pushed its market cap above those of Meta and Tesla. Micron’s performance initially helped to lift valuations of most other semiconductor and memory firms, with the notable exception of Nvidia. By Friday morning, however, South Korean tech companies such as Samsung, SK Hynix, and Kioxia faced heavy selling as traders moved to lock in their profits and also blamed the potential delay of the OpenAI listing. This nervousness suggests that the rally in AI infrastructure stocks may have temporarily run ahead of fundamentals and raises questions about the durability of AI demand amid surging computer component prices.
- SK Hynix is seeking to raise $29.4 billion through a US stock listing that could rank among the five largest share sales in history, after becoming the leading supplier of high-bandwidth memory (HBM) chips for AI data centres and Nvidia’s largest HBM supplier. The company said on Wednesday it will use the proceeds to expand production capacity and invest in advanced chipmaking equipment. Its 58% share of the global HBM market has helped drive a 300% surge in its Seoul-listed shares this year, lifting its market value above $1 trillion and positioning it to benefit from sustained AI-driven demand.
- Alphabet shares tumbled as much as 7.2% on Monday after Google DeepMind VP John Jumper left for Anthropic, following the departure of another leading AI researcher to OpenAI last week. The departures raised concerns that Google is losing the battle for AI talent and falling behind in the frontier AI race.
- SpaceX raised $25 billion through its first investment-grade bond issue on Tuesday after attracting about $90 billion of investor orders, allowing it to increase the size of the sale from an initially planned $20 billion. The proceeds will refinance a bridge loan linked to financing for Elon Musk’s X and xAI businesses and fund future growth initiatives.
- Apple raised prices across all Macs, iPads, home devices and the Vision Pro on Thursday, citing an unprecedented surge in memory and storage costs driven by AI data centre demand. The company said it has “never seen a component price increase this much, this quickly”. Shares fell as much as 6.1% on Thursday, their biggest intraday drop in over four months, as investors weighed the impact of the across-the-board hikes – a rare move with no equivalent in Apple’s history.
- As at Thursday’s close the S&P 500 was 1.9% down for the week.
Local News
- President Ramaphosa has appointed former National Treasury budget chief Michael Sachs as his economic adviser, bringing a respected fiscal technocrat back into government as South Africa seeks to accelerate growth and deepen reforms. Sachs, who headed the budget office from 2015 to 2017, returns at a time when the economy has expanded by less than 1% on average over the past decade, despite progress on electricity, public finances and logistics.
- S&P Global Ratings cut South Africa’s 2026 GDP growth forecast to 1.3% from 1.5% on Thursday, saying higher inflation, rising energy costs and further interest rate increases are expected to weigh on the economy. The agency now expects inflation to exceed 5% in the second half of the year and forecasts at least one more interest rate hike by the South African Reserve Bank.
- Producer price inflation accelerated to 7.8% in May from 4.8% in April, driven by a sharp rise in petroleum and chemical prices, signalling that consumer inflation pressures are likely to build in the months ahead. Statistics South Africa data released on Thursday strengthens the case for a further interest rate hike by the South African Reserve Bank (SARB) in July, despite lower-than-expected consumer inflation. On Wednesday, SARB Deputy Governor Rashad Cassim reiterated that maintaining inflation at the Central Bank’s 3% target could allow the policy rate to fall to 6% from the current 7% over time.
- Consumer confidence fell to its lowest level in more than a year as the war in Iran drove fuel prices higher, placing further strain on household budgets and threatening consumer spending, a key driver of economic growth. The First National Bank and Bureau for Economic Research survey, released on Tuesday, showed the sharpest deterioration among high-income earners. As the survey was conducted before the South African Reserve Bank’s May interest rate hike, it is unlikely to reflect the full impact of tighter monetary policy on consumer confidence.
- The Constitutional Court ruled this week that second-hand gold does not qualify for VAT zero-rating, closing a decades-old loophole and subjecting most recycled gold transactions to the standard 15% VAT rate.
- Gauteng has allocated R296 million to support struggling municipalities as the province’s 11 councils grapple with weak financial controls and governance failures flagged by the Auditor-General. The funding, from the Gauteng Department of Co-operative Governance and Traditional Affairs’ R650.5 million budget announced on Thursday, comes as municipalities collectively owe creditors R173 billion, including R31 billion to Eskom, while Johannesburg battles a financial crisis despite its R97.1 billion budget with R5.3 billion debt to the power utility.
- London-based fintech Revolut plans to launch in South Africa by 2028 and has applied for a banking licence from SARB. The company, valued at $115 billion (R1.9 billion) and serving 75 million users globally, said on Tuesday that its local waitlist is nearing 100,000 registrations. Revolut plans to offer a zero-fee account and localised products as part of its African expansion, competing with established banks and digital challengers such as GoTyme and Discovery Bank.
- Woolworths has opened a “dark store” in Cape Town’s Wynberg to expand its online fulfilment network as demand for rapid grocery delivery grows. The facility, which is not open to the public, will expand Woolies Dash capacity in the southern suburbs while improving delivery speed, reliability and product availability, the company said on Wednesday. More dark stores are planned as retailers invest in dedicated online grocery fulfilment, with Woolies Dash accounting for 6.6% of Woolworths Food sales in the year to June 2025.
- As at the time of writing, the rand was 0.5% weaker against the dollar, and the ALSI was 2.1% down for the week.
Sources: Dynasty, Business Day, NYT, Bloomberg, Reuters, Business Report, Moneyweb, Daily Investor, etc.
