Key events

1h ago European stock markets open higher
2h ago Reckitt Benckiser beats expectations, predicts lower impact of Iran war on costs
2h ago Introduction: Oil jumps after Iran attempts surprise attack

Investors in chip stocks around the world are growing increasingly nervous about AI spending - and the South Korean SK Hynix, which specialises in manufacturing dynamic random-access memory chips and flash memory chips, is caught in the eye of the storm.

Matt Britzman, an analyst at the broker Hargreaves Lansdown, says:

SK Hynix could hardly have picked a tougher moment for its Nasdaq debut. Just weeks after entering the US market, investors are grappling with virtually every AI concern imaginable, from questions about hyperscale spending and model efficiency to worries that the sector's extraordinary growth is beginning to slow.
Against that backdrop, a set of results that largely reinforced the long-term investment case, but fell marginally short of elevated expectations, was enough to trigger a sharp reaction.
The sell-off across memory stocks looks more like a sentiment reset than a change in the earnings story. Investors are moving from a phase in which every quarter delivered huge upgrades to forecasts to one in which growth remains exceptional but increasingly needs to be measured against already lofty expectations. Forecasting this market remains incredibly difficult because the AI landscape is evolving so quickly, so some earnings-day volatility is inevitable.
The key question now is not whether companies can keep delivering endless upside surprises, but whether this earnings cycle proves more durable than the market expects.
In our view, the bull case remains intact, but the low-hanging fruit of constant upgrades is behind us. The opportunity increasingly centres on a structurally improved margin cycle, with higher peaks, shallower troughs and the potential for significant shareholder returns as monster earnings translate to enormous cash flows.

European stock markets open higher

It is an upbeat start to the day for European stock markets - the Stoxx Europe 600, which tracks the biggest companies on the continent, is up 0.3%.

The UK's blue chip FTSE 100 index is up 0.6%, led by a 1.9% rise in its basic materials sector after some strong earning reports this morning. The German Dax and the French Cac 40 are both up by about 0.3%.

That being said, Europe is not completely immune to the chip stock sell-off seen in Asia and in the US - its worst performers today include chip companies Infineon Technologies and ASML, both down by about 1%.

And in the mining sector: Rio Tinto has reported a jump in profit in its second quarter, thanks to rising commodity prices and a slimmer business after deep cost-cutting and divestments.

Profit rose 43% to $6.9bn (5.2bn) on the back of stronger commodity prices, particularly in copper which has been boosted by AI-driven demand for building materials for data centres. Its shares are up 2% this morning.

Glencore has also published a production update today, telling investors that copper is up 15% on higher grades at key operations, and its marketing unit is expected to report adjusted earnings of around $3.3 billion at its half-year point. Its shares are up 4%.

Reckitt Benckiser beats expectations, predicts lower impact of Iran war on costs

On the corporate front this morning, the consumer goods group Reckitt Benckiser reported stronger sales than expected in its second quarter, boosted by strong demand for its cleaning and hygiene products.

Like-for-like sales at Reckitt's core brands, such as Dettol disinfectants and Durex condoms, rose by 4.2%, compared with expectations of 3.7%.

However, the FTSE 100 company's operating profit dropped 14.3% at 1.47bn in the six months ended in June.

Reckitt, which warned in April over a possible hit of up to 150m due to rising oil prices, also said this morning that it now predicts a lower impact as prices have eased back (relatively speaking).

It said:

While still volatile, oil prices have moderated since then and we currently expect a reduced input cost impact in 2026. We continue to view this as a manageable headwind and are taking actions to mitigate the impact

The attempted attack by Iran on US forces have thrown cold water on the idea of a swift de-escalation in the Persian Gulf, analysts at the broker ING have warned.

Warren Patterson and Ewa Manthey wrote in a note this morning:

With Saudi oil infrastructure increasingly targeted, the risk of more prolonged supply disruptions grows. There are reports that the 400k b/d Jazan refinery in Saudi Arabia has shut following Houthi attacks over the weekend. If confirmed, this will only add to tightness concerns in the refined products market already dealing with disruptions from the Persian Gulf, as well as Russia.
Meanwhile, tanker traffic through the strait of Hormuz remains essentially halted. While Iran and Oman have held talks on managing vessel transits through the strait, Iran has rejected Oman's proposal for a 50-50 shipping plan. It would facilitate an inbound route on one country's side and the outbound route on the other's. Instead, Iran wants oversight of both inbound and outbound vessels.

They added that the European gas market looks increasingly vulnerable as we head into winter.

QatarEnergy has reportedly extended its force majeure for buyers in Asia and Europe to as far as the end of September. There have also been reports of QatarEnergy looking to subcharter an LNG carrier until the end of October, given the ongoing disruptions to Qatari LNG exports.
EU LNG imports are on track to fall a little more than 25% YoY in July, which is making the job of refilling storage more difficult. EU gas storage is 56% full at the moment, below the 10-year seasonal average of 72%. Heatwaves across Europe will only add to the difficulty in filling up storage ahead of the winter. Tighter-than-usual storage at the start of the heating season suggests that gas prices will remain elevated through the winter, with the risk of spikes higher.

Introduction: Oil jumps after Iran attempts surprise attack

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Oil is rising again this morning after the US military said it knocked down an Iranian missile barrage and worked with Saudi Arabia forces to strike sites in Iraq that Tehran-backed militias have used to launch attacks in recent days.

In what Washington cast as an attempted surprise attack by Tehran, Iran had launched multiple ballistic missiles at US forces in the Middle East, ending a brief pause in fighting. Iran's target was a US base in Jordan, according to Axios.

The news has sent Brent crude, the international benchmark for oil prices, up 3.8% to $87.26 a barrel this morning.

Meanwhile in Asia, the rout in chip stocks has continued overnight - the South Korean stock market, which relies heavily on the chip companies SK Hynix and Samsung Electronics, has lost a further 8.3% today. SK Hynix shares slumped 9% even after reporting a six-fold surge in its quarterly profit, while shares in Samsung (which is due to report its earnings tomorrow) dropped 6%.

It follows another tough day of trading for US chip stocks, which dragged the Nasdaq down 1% yesterday. Sandisk fell 14%, while Western Digital and Micron fell 6.9% and 8.9% respectively. Advanced Micro Devices fell 8.1%.

Higher oil prices and the continued sell-off in chip stocks creates an uncertain environment ahead of the Federal Reserve's interest decision later today, Jim Reid from Deutsche Bank notes.

All that leaves a volatile backdrop ahead of today's FOMC decision, which is the most finely poised in years in terms of market pricing. With a 32% chance of a rate hike today priced as of last night, this is the most uncertain that the market has been on whether the Fed will change rates going into a meeting since December 2018, when the eventual 25bps rate hike was about 65% priced the day before.
We have seen considerable volatility in the July hike pricing over the past couple of weeks, falling as low as 10% in mid-July following the soft June US CPI print but rising to as high as 38% on Monday. So with chair Warsh shying away from policy guidance, we have seen one regime shift compared to the past few years when markets received a steer from officials' commentary or via the financial press.
In terms of today's decision, our US economists expect the Fed to leave rates unchanged but see the risks of a hike as significant with the renewed escalation in the Middle East complicating the inflation outlook. If the Fed holds rates steady, they expect at least a couple of dissents in favour of a hike.

The agenda

7am BST: Aberdeen half-year (HY) results, Greggs HY, Airbus HY, Aston Martin Lagonda HY, Campari HY, Danone HY, Deutsche Bank Q2, Hermès HY, L'Oréal HY, Porsche HY, Procter and Gamble Q4/FY, Reckitt Benckiser HY, Rio Tinto HY, Standard Chartered Q2/HY, UBS Q2
9.30am BST: ONS workless households data
7pm BST: US Federal Reserve decision on interest rates
9pm BST: Microsoft Q4/FY
9.30pm BST: Meta Q2