Morning Bid: Running on empty

• The four major U.S. hyperscalers (Microsoft, Alphabet, Amazon, Meta) could collectively spend more on capex than they generate in free cash flow by 2027 if current spending continues, per LSEG estimates
• Middle East energy supply faces severe disruption as Yemen's Houthi militia targets Saudi vessels in Bab el-Mandeb Strait, the primary workaround after Strait of Hormuz closure following U.S.-Israeli war with Iran on February 28
• Japan's yen hit multi-year lows against the dollar as the country faces particular vulnerability to energy inflation, importing 90% of its energy with 95% previously sourced from the Middle East

Market Summary: Cash Burn Concerns and Energy Crisis Dominate Trading

Key Developments:

Major U.S. tech companies face mounting cash flow concerns as AI infrastructure spending accelerates. Alphabet reported negative free cash flow for the first time ever while raising its 2026 capex projection by $15 billion. Tesla also entered cash-burn mode for the first time in over two years, posting negative free cash flow in Q2 due to heavy AI and robotics investments.

Analysis suggests the four major hyperscalers (Microsoft, Alphabet, Amazon, Meta) could collectively spend more on capex than they generate in free cash flow by 2027 if current trends continue. Upcoming earnings from Microsoft, Meta, and Apple will provide additional clarity.

Energy Market Crisis:

Crude prices are spiking amid escalating Middle East conflicts. Following the U.S.-Israeli war with Iran (started February 28) and effective closure of the Strait of Hormuz, the Bab el-Mandeb Strait had become the primary oil export route. However, Yemen's Houthi militia has now begun attacking Saudi vessels in this corridor, severely constraining Middle East oil exports.

The Russia-Ukraine conflict compounds supply issues with Black Sea port closures. The critical concern centers on refined products (gasoline, diesel) as refining capacity has been drastically cut. India may partially offset shortages, but significant supply crunches persist.

Market Impact:

U.S. stocks fell to multi-week lows Thursday, led by the tech-heavy Nasdaq. South Korea's KOSPI dropped over 5% Friday, hitting near three-month lows. Treasury term premiums rose, bond yields spiked, and the dollar strengthened—signaling increased risk aversion. The Japanese yen hit multi-year lows against the dollar, with Japan particularly vulnerable given its 90% energy import dependence.

Other Developments:

The White House imposed new tariffs on 60 trading partners over forced labor concerns. The Federal Reserve meeting next week takes focus, with potential rate hike discussions given energy price inflation.