The financial week in five charts - Spiking yields; widening spreads; and a long cold winter
Every Friday, Open Interest distills the week's financial data into five charts that highlight the main trends, surprises and overlooked movements.
1. COST OF CREDITIBILITY JAMIE MCGEEVER, ROI Markets: On Wednesday, the 30-year Treasury yield soared to 5.20%, its highest level in almost two decades. The 30-year Treasury yield surged above 5.20% on Wednesday, the highest level in nearly two decades.
The markets were less concerned by the Fed's decision to keep rates the same than the Fed Chair's convoluted words, which raised doubts about the Fed's willingness to take necessary steps to bring inflation to its 2% goal.
No Fed chair can allow this perception to grow, especially one who entered office under suspicion of his independence from the White House which has called for a more dovish approach.
2. CHIP CHOKE
ANNA SZYMANSKI is the Editor-in Charge of ROI. South Korea's chips stocks have had a volatile last week, ending a difficult month. SK Hynix, Samsung Electronics and other South Korean chip stocks may have gotten a boost on Friday – after Microsoft and Amazon calmed AI capex fears – but they remain more than 40% and 25 % below their respective June highs. The two tech giants have just released their second-quarter results, which were exceptional - but not enough. SK Hynix reported a six-fold increase in profits, but missed expectations. Samsung, on the other hand, reported a 250x rise in chip profits, only to see their shares fall.
South Korea's benchmark KOSPI, dominated by SK Hynix and Samsung, is down more than 20% this month despite a Friday jump of nearly 18%. Remember that it has more than doubled in the last 12 months. I call that volatility.
3. CAPEX QUESTIONS MIKE DOLAN, ROI Finance & Markets columnist: Market anxiety was focused on the cash burn of hyperscalers and the debt raised to fund their massive capex cycle, which is building out AI infrastructure. When will the spending become a problem for AI infrastructure? AI bulls believe not until the next year. But even they are concerned. Manish Kabra, Societe Generale, says that you should monitor hyperscalers debt levels and credit-default swap spreads to see if they are under stress. Manish Kabra believes that CDS spreads have pushed hyperscaler valuations down to 18 times earnings, the lowest since ChatGPT launched in 2022.
4. WINTER IS COMING RON BOUSSO is a columnist for ROI Energy. Europe's gas stocks are at a dangerously low level as it heads into winter. Due to disruptions in the Strait of Hormuz caused by the Iran War, LNG imports are down since the beginning of the conflict. Demand from Asia is also up and diverting cargoes which would have otherwise headed for Europe. Even if imports rebound in the coming months, it is likely that the region will enter winter with inventory levels well below the targeted 80% level. It is another reminder that Europe’s current energy system, based on imported fossil fuels is unfit for purpose in a time of rising geopolitical risk and increasing importance to energy security. Europe has an ambitious plan for electrification and renewables, but time is running out.
5. ALUMINIUM IS ON THE BRIGHTSIDE ANDY HOME is the ROI Metals columnist. The Iran War has escalated again but you would not know that from the price of aluminium.
LME 3-month aluminium, which reached a record high of $3.787.50 per ton in early June, is now trading at around $3.170, exactly where it stood before the U.S. On February 28, the United States launched "Operation Epic Fury", a military campaign against Iran.
The unexpected calm in the market over the past few days is due to a growing belief that even if the Gulf metal loss continues, it can be offset by increased exports from China or Indonesia.
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(source: Reuters)
