Written by AI stocks hit fresh turbulence
Tech stocks are suffering a renewed rout after price increases by Apple sparked fears about the sustainability of the AI boom, with chip stocks once again being at the centre of the volatility storm. Apple became the first big tech company to raise the prices of its major products like the MacBook and iPad on Thursday, blaming the hike on the shortage of memory chips.
The announcement, which comes at a fragile time for the AI trade, has raised concerns that other companies will soon follow with similar price hikes, as the massive investment in AI datacentres has led to an unprecedented demand for memory and storage chips. If a tech giant such as Apple is unable to absorb the cost of higher memory prices, it’s probably only a matter of time before others do the same. Microsoft has already announced it’s increasing the price of its Xbox console.
This then raises the prospect that consumer demand for tech and AI products will eventually cool, bringing into question whether all the spending on AI infrastructure will pay off.
Equities turn red again
Apple’s stock plummeted by just over 6% on Thursday, with other Magnificent Seven stocks falling significantly too, although not exceeding 3.5%. Chip stocks took the brunt of the selloff, even as the likes of Micron and Qualcomm rallied, following bumper earnings for the former and upbeat revenue targets by the latter.
The Nasdaq 100 ended the day 0.75% higher but the broader composite index finished in the red, along with the S&P 500, which is headed for weekly losses of almost 2%. On Friday, the Nikkei 225 and KOSPI 200 indices have swung back into steep losses, just a day after rebounding strongly.
Reports that ChatGPT owner, OpenAI, is seeking to delay its IPO added to the risk-off mood, while month-end and quarter-end rebalancing could also be contributing to the turbulence.
Oil stays choppy amid Hormuz attack
Lower oil prices and not-so-hawkish remarks from Fed officials haven’t been able to lift risk appetite much. WTI and Brent crude futures are back to pre-Iran war levels on Friday after yesterday reversing sharply higher on the headlines about an Iranian attack on a cargo vessel travelling through the Strait of Hormuz.
The fresh escalation was seen as a warning shot by Iran for ships to use designated routes only for passage through the strait. However, after a brief pause, traffic has resumed, with at least four oil tankers able to sail through since the incident.
Nevertheless, after three straight weeks of heavy losses, WTI price action suggests there is support building around $70.00, and investors might wait for further evidence of normalization in oil flows before attempting to crack that floor.
Gold on firmer footing as dollar comes under pressure
Gold prices are also steadier, with a potential bottom forming around $4,000. The precious metal is edging up for a second day to around $4,035, aided by a softer US dollar.
The greenback’s impressive week-long rally appears to have come to an end, as traders have somewhat scaled back their Fed tightening expectations. A 25-bps rate increase in September is now only 73% priced in after being almost fully priced a few days ago.
The shift in expectations comes after yesterday’s in-line PCE inflation data and not very hawkish sounding language by two Fed policymakers. Core PCE accelerated slightly to 3.4% y/y as projected in May, but headline PCE rose by less than expected on a month-on-month basis, easing fears about an imminent rate hike.
Still, other US data such as personal consumption, durable goods orders, weekly jobless claims and the final estimate of Q1 GDP were solid, reinforcing the view that rate cuts are out of the question.
Fed officials give little away
But whilst the Fed has ruled out rate cuts for now, there was some surprise hesitancy yesterday by the Chicago Fed’s Goolsbee and New York Fed’s Williams in signalling rate hikes. Both sounded unhappy about the above-target inflation rate. But although Goolsbee gave little else away, likely conforming to Warsh’s stance on forward guidance, Williams went a step further and suggested that monetary policy is currently “well positioned” to return inflation back towards 2%.
The euro is making the most of the dollar’s slight pullback to climb towards $1.14. Even the yen is enjoying some respite, firming to around 161.58 per dollar, helped by an uptick in CPI in June in the Tokyo region.
By XM.com
