Written by Stocks mixed as chips stay volatile
Equity markets are in whipsaw mode again, with chip stocks driving much of the volatility as the tech earnings releases slowly get underway. Dutch chip supplier ASML Holding and contract chipmaking giant Taiwan Semiconductor Manufacturing Company both reported better-than-expected results in the last 24 hours. The two major chip players not only beat their revenue estimates, but they also issued sales forecasts that topped expectations.
However, although both stocks are up today, the earnings numbers failed to lift the wider chip sector, with Korean chip giants SK Hynix and Samsung Electronics diving in Asian trading today. It follows a slump on Wall Street yesterday in major chip stocks such as Marvell Technology, ARM Holdings, Intel and AMD.
But this wasn’t a broad tech selloff; rather, it was a rotation away from chips and into old Magnificent Seven favourites. Apple led the way among the Big Tech, gaining 4% to close at a new all time high. The iPhone maker was boosted after the company received approval in China for its generative AI service, Apple Intelligence.
This sub-sectoral rotation kept the main US indices in positive territory on Wednesday. However, e-mini futures are trading slightly lower today, tracking declines in the KOSPI 200 and Nikkei 225 indices. Shares in Europe are mostly in the red.
Netflix might offer traders some much needed distraction from AI, as the streaming giant is set to announce its Q2 results after Thursday’s closing bell on Wall Street.
Warsh repeats inflation resolve but no hints on rates
There’s been some support to risk assets by this week’s subdued inflation readings in the United States. Hot on the heels of Tuesday’s soft CPI report, producer prices also rose by less than expected in June. Apart from energy, lower food prices were a drag too on the producer price index.
The data helped to wipe out any realistic chance of a rate hike as early as the July meeting, while the odds for September fell to less than 60%.
The inflation figures were accompanied by Fed Chair Kevin Warsh’s first semi-annual testimony before lawmakers. Yesterday, it was the turn of the Senate Banking Committee to grill the new chairman. However, as expected, Warsh avoided providing clear signals on whether he thinks rate hikes will be needed to bring inflation back towards the Fed’s 2% target, although he repeated the message that he isn’t happy about the current level of inflation.
Other Fed speakers have been echoing the view that inflation is too high, but only a few such as Governor Lisa Cook are explicitly signalling their readiness to hike rates.
More Fed policymakers will be hitting the wires today, including the Dallas Fed’s Logan and the Kansas City Fed’s Schmid, while June retail sales and the weekly jobless claims will also be watched.
Yen struggles despite dollar at one-month lows, pound soars
The US dollar fell sharply on the back of both Tuesday’s and Wednesday’s data, pushing its index against a basket of currencies to one-month lows. The drop mirrored the moves in US Treasury yields.
However, once again, the yen has been the exception, as the Japanese currency has been unable to stage much of a recovery and remains down on the week, even with the boost from the news that the Japanese government will take measures to encourage the country’s state pension fund to invest more domestically.
The pound on the other hand is paring some of yesterday’s strong gains when it jumped on reports that incoming prime minister Andy Burnham is considering appointing current Home Secretary Shabana Mahmood as his chancellor.
Mahmood, who is considered to be from the right of the Labour party, is seen as less likely by the markets to pursue tax and spend policies that could trigger another budget crisis similar to the one by Liz Truss in 2022.
UK gilts also liked the headlines, with the 10-year yield tumbling back below 5.0%, while sterling surged by 1.1% to a two-month high of $1.3557.
Oil rebound loses steam, gold bulls nowhere to be seen
In the Middle East, there’s been no letup in the fighting, as the US and Iran continue to strike each other’s targets. The US strikes have mainly been concentrated along the Iranian coastline to weaken its capability of attacking vessels passing along the Strait of Hormuz, while the IRGC has been causing damage to US bases in the region.
Nevertheless, the bounce back in oil prices appears to be petering out, at least for now, even in the absence of a ceasefire or a push for renewed talks.
It’s likely that investors are taking comfort in the fact that some tankers are still able to cross the strait and that Iran’s counterstrikes are so far limited to US assets and not Arab states’ energy infrastructure like at the height of the conflict.
WTI oil futures are trading marginally lower on Thursday around $79.55. Oil’s slowing recovery should help to contain some of the worst fears about inflation spiraling out of control.
However, this isn't benefiting gold much today, as the precious metal is on the slide again, easing to around $4,035 after two days of gains. More importantly, gold has failed to break above its short-term descending channel even after this week’s downside surprises in US CPI and PPI, suggesting investors still see higher Fed interest rates ahead.
By XM.com
