(The opinions expressed here are those of the author.)

By Anna Szymanski

July 24 (Reuters) - From the Editor

Hello Morning Bid readers!

Cash burn and spiking crude prices dominated market

headlines this week. The AI capex boom has helped many asset

classes ignore the rising geopolitical turmoil of the past seven

months, but - like the rest of the world - it might be running

out of fuel.

U.S. stocks fell to multi-week lows on Thursday, led by the

tech-heavy Nasdaq, due, in part, to jitters about the durability

of the AI capex spree. Alphabet, the first of the tech giants to

release earnings this quarter, reported negative free cash flow

for the first time ever while also boosting its 2026 capex

projection by $15 billion.

Moreover, Tesla also reported that it is back in cash-burn mode.

Elon Musk's electric vehicle company missed analysts' profit

forecasts for the second quarter and reported negative free cash

flow for the first time in more than two years, reflecting

massive spending on infrastructure related to AI and robotics.

Zooming in on the cash burn question, an analysis from Reuters

shows that the four major U.S. hyperscalers - Microsoft,

Alphabet, Amazon and Meta - could collectively start to spend

more on capex than they generate in free cash flow by 2027 if

their current spending pace continues, according to LSEG

consensus estimates.

Markets will get more color on this story next week as

Microsoft, Meta and Apple all report.

Asian equities remained volatile as well this week. South

Korea's chip-heavy KOSPI hit its lowest point in almost three

months on Monday. It was in positive territory afterward, but

has dipped again on Friday, falling more than 5%.

The latest bout of weakness likely reflects the other story

dominating headlines: the inferno in the Middle East. After two

weeks of renewed fighting between the U.S. and Iran, the

conflict has now expanded, with Yemen's Iran-aligned Houthi

militia announcing a blockade of Saudi Arabian vessels seeking

to pass through the Bab el-Mandeb Strait.

This is a massive problem not only for the Saudis but for

energy markets overall, as Bab el-Mandeb had become the primary

workaround for oil exiting the Middle East following the

effective closure of the Strait of Hormuz after the outbreak of

the U.S.-Israeli war with Iran on February 28.

While energy markets have proven remarkably adaptable in recent

months, this may be one crisis too many, as global reserves have

been depleted and alternative routes for getting crude out of

the Middle East are becoming increasingly inefficient.

On top of all this, the Russia-Ukraine war is also disrupting

supply, as Kazakhstan's oil production has now

plummeted following the closure of a key port after several

drone attacks on ships in the Black Sea.

Crude prices finally appear to be waking up to the risk.

Brent rose above $100 a barrel on Thursday for the first time in

two months. Prices dipped below that symbolic threshold on

Friday morning, but are still up over 30% in July so far. Given

the likelihood that this conflict could escalate further this

weekend, prices may not remain capped for long.

Ultimately, though, the real energy crisis right now is not in

crude but in refined products - fuels like gasoline and diesel -

that households and industry actually consume. Refining capacity

has been cut drastically this year because of both the Iran and

Ukraine wars, and while India may be able to help offset some of

that pain in Asia, the crunch is still very real.

Given all this, markets outside the energy space are starting to

show more signs of concern. The "term premium" on Treasury

yields has risen, government bond yields overall are spiking and

the dollar continues to strengthen - all indicating that the

"stagflation" risk premium is building.

The above-mentioned dollar strength is rippling through currency

markets, most notably in Japan, where the embattled yen fell to

a fresh 40-year low against the greenback this week. Japan

imports 90% of its energy, with 95% of that previously coming

from the Middle East, so the country is highly exposed to the

inflationary pressures posed by the latest energy supply crisis.

More broadly, Japan's government appears to be in a policy "doom

loop," with markets balking at its loose fiscal policy and

insufficiently tight monetary stance.

Now, from real wars to trade wars, the White House announced on

Friday that it was imposing new tariffs of 10% and 12.5% on

goods from 60 trading partners, including Europe and China, over

allegations of lax enforcement of forced labor bans. This

occurred just as the president's temporary 10% global tariff

expired.

Over in the UK, Andy Burnham took over as prime minister on

Monday, becoming Britain's seventh leader in a decade. He

surprised many by appointing former defence minister John Healey

as finance minister, a move that could indicate that a boost in

military spending is coming.

Either way, UK markets appear to be giving Burnham the benefit

of the doubt for now, with gilts staying relatively calm.

Markets may be hoping that the proponent of "business-friendly

socialism" has some success because the party waiting in the

wings - the populist Reform UK - arguably presents a greater

fiscal risk.

Looking to next week, the Federal Reserve meeting will be

the main event. Little is expected to happen, though the

potential for a rate hike has increased this week given the

energy price spike. Markets will be listening closely to hear

what Chair Kevin Warsh says - or doesn't say - about the current

inflation environment and the labor market outlook. He'll get a

bit more data to chew on later in the week as second-quarter GDP

and core PCE inflation results for June are released.

For more data-driven insights on markets and commodities, check

out Reuters Open Interest. You can learn:

* Who's funding America's widening debt with the rest of the

world?

* How large is America's wealthy class? (Hint: bigger than

you think.)

* Has AI killed diversification?

* Is China's steel sector really as weak as it looks?

* Could leveraged ETFs stoke massive volatility on Wall

Street?

* Are junk bond spreads actually thin - or are you just

measuring them incorrectly?

* What's the biggest risk to Europe's ambitious

electrification goals? (Hint: it's not the buildout.)

* What might be China's next surprise for energy markets?

* How are wildfires threatening the U.S. power system?

* Is European industry headed for a lost decade?

I'd love to hear from you, so please reach out to me at .

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Opinions expressed are those of the authors. They do not reflect

the views of Reuters News, which, under the Trust Principles, is

committed to integrity, independence, and freedom from bias.