MORNING BID AMERICAS - Chips and Ships
From the Editor
Hello Morning Bid readers!
It's hard to escape semiconductors and the strait.
Asian stocks fell this week, despite the fact that tech giants such as Taiwan's TSMC had reported record numbers. These ructions could 'indicate concerns over the durability of hyperscalers massive AI capex expenditures - and therefore chipmakers' eyeball-popping profits' but the volatility in Asia is likely to also reflect the unwinding leveraged positions.
Brent crude oil prices were hovering at $85 per barrel on Friday morning, well below their wartime peak of $118. Investors seem to be betting on the idea that tensions will subside soon - an?gamble which may not payoff.
KOSPI, the Korea stock index dominated by Samsung and SK Hynix – two of the world's largest chipmakers – fell?6% Thursday. This is a drop of?roughly a third from its peak in June. This index has been volatile recently, the most since the late '90s when the market was shook by the LTCM Crisis and Russian default. It may be due to the rapid growth of leveraged ETFs. The South Korean financial regulator announced on Thursday measures to control the use of leveraged ETFs.
The U.S. market was also a bit jittery this week. The Philadelphia Semiconductor Index has now dropped almost 13% this month, but it is still up 70% for the year. Investor confidence on both sides of the AI debate is increasing as the uncertainty about the sustainability of the AI narrative grows.
SpaceX's share price briefly fell below the $135 public offering price on Wednesday for the first ever. In the days following the record-breaking public sale on June 11, the company's stock price fell over 30%.
The U.S. large banks reported record earnings for the second quarter this week. The mega-IPOs, other large deals and market volatility kept the trading desks busy. JPMorgan, Goldman Sachs and Citigroup were the big winners. Citigroup's share price fell despite its highest quarterly earnings for a decade as investors expressed concerns over its increasing expenses and outlook.
Geopolitically, Iran and the U.S. are entering a new dangerous phase of conflict, after President Donald Trump informed Congress last weekend that the conflict had been formally resumed. The U.S. has launched six nights of attacks on Iran and has reimposed their naval blockade of its ports after Iran closed the Strait of Hormuz, which is of vital importance. Iran has also attacked multiple U.S. bases in the region. Mohammad Baqer Qalibaf, Tehran's chief negotiator, said that Iran was "in a fundamental and existential conflict with America." Trump threatened on Tuesday to?hit Iranian power plants and a bridge next week, if Tehran does not resume negotiations. These threats are eerily similar to the ones he made before the June 17 interim peace agreement and the April ceasefire. The recent U.S. attacks?on Iran look like they may have set the stage for an even more complex operation, based on their targets. Clyde Russell's latest ROI Weekend Read will explain why superior military power may not be the deciding factor in this conflict. However, energy traders do not seem to be concerned. Although crude oil prices are up more than 12% in the last week, they have remained relatively stable, which suggests that traders believe that the conflict is likely to de-escalate soon and that energy markets will be able to handle a short-term closing of the Strait of Hormuz.
This could be a mistake, because global oil stocks were low when the conflict began in February. That is not the case anymore. Iran has also asked Yemen's Houthis not to allow the Red Sea oil pipeline to be used if the U.S. attacks Iranian power infrastructure.
The energy markets are also anticipating China's next moves. China's drastic reduction of crude oil imports is credited for keeping prices down during the Iran conflict. Investors are asking if 'the world's largest oil importer could do the same on the refined product markets, especially if conflict escalates.
It is clear that the Hormuz Crisis has shown how China's role has changed in the global energy market. From being a price taker, it has now become a maker of prices.
China still faces many economic challenges, as highlighted by a number of data released this week. Both its exports as well as imports exceeded analyst expectations in June. This was largely due to the strong shipments of semiconductor chips and other technology equipment, and automobiles.
China's second-quarter economic growth was only 4.3%, which is below market expectations as well as Beijing's target. The domestic?consumption is still a problem, and property prices are down 3.5% in June compared to the same month last year.
The U.S. inflation rate was also surprisingly low, at 2.6% compared to 2.9% in the previous month. Producer prices were also a surprise on the lower side. Federal Reserve Chair Kevin Warsh said that the mission is far from accomplished, especially since fighting in the Middle East may push oil prices up again. This could lead to higher prices in other areas.
Next week's economic data will be light, but the earnings season will continue with Tesla, Alphabet, and Intel. The Middle East is also a major story. However, how much this will affect the markets is still a question.
Is it political if Fed members are flip-flopping a lot? Should NATO consult Ukraine on how to re-arm itself? What is the U.S. What is the?U.S. What is the impact of Asia's rush for LNG on Europe? What impact could drones have on the future of energy? What is the most likely unexpected trend to impact on European gas demand? Are more countries likely to enter the metal smelter business? Will global FOMO continue to attract overseas money to Wall Street Why is it unlikely that farmers will increase grain production? We should focus more on China than America when it comes to economic policy.
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(source: Reuters)
