Written by Chip stocks unable to halt slide
In many ways, the earnings season couldn’t have gotten off to a stronger start as chip industry bellwethers ASML and TSMC both reported stellar earnings for the past quarter. But whilst some profit-taking was to be expected given the meteoric rise in chip stocks, and to a lesser extent all other AI-related stocks, the deepening rout has started to raise alarm bells, as key technical support levels are being tested.
Sandisk, IBM and Marvel Technology are leading the decliners, while Apple, Microsoft and Amazon are headed for weekly gains, underlining the recent divergence in the performance of the broader tech sector. Unsurprisingly, the Nasdaq 100 has slid the most among the major indices, on track for weekly losses of more than 2.5%, but the Dow Jones is so far down just 0.16%.
The negative sentiment was exacerbated yesterday by headlines about Alphabet’s AI delays and Netflix’s Q2 results. Bloomberg reported that the Google owner’s latest Gemini 3.5 Pro AI model is ‘months behind schedule’, sparking fears the company is falling behind the AI race. Meanwhile, streaming giant Netflix missed its revenue estimate and issued guidance for Q3 that failed to match analysts’ projections.
With tech earnings set to heat up next week, high capex spending - not just by the hyperscalers but also by the AI enablers - seems to be top of investors’ minds this season, raising the bar for earnings expectations well above what they can deliver.
Oil steady despite tensions, has best week since April
The continued escalation in the Middle East has certainly added to the risk-off mood. The United States attacked Iranian targets for a sixth night on Thursday, while Iran widened its strikes on US forces in the region to Syria and Bahrain, as well as hitting Kuwait, Qatar and Jordan.
Oil futures are edging higher today but holding largely within the tight range of the past three days. For the week, both WTI and Brent crude are headed for their best showing since April, with gains of over 11%.
Many traders still seem to think that it’s only a matter of time before both sides return to the negotiating table, hence oil struggling to move past $80, even though there’s no indication of fresh talks. Crucially, traffic along the Strait of Hormuz has collapsed again, implying that energy shortages can only worsen from here on.
Gold finds some love but upside limited
Markets are probably still holding onto the view that President Trump will announce another ceasefire before campaigning for the November midterms gets into full swing. But Trump appears to be shifting his focus to election interference, accusing China of meddling in the 2020 presidential vote.
This not only adds to the risk of renewed US-China tensions but suggests Trump has no plans to end the war with Iran anytime soon and is looking for other distractions before hitting the campaign trail.
Amid the geopolitical uncertainty and volatility in stock markets, gold is gently being nudged upwards after again testing the $4,000 support region. However, the precious metal is still down about 3% for the week, as the jump in oil prices has put rate hikes back under investors’ glare.
Dollar off lows after Fedspeak, yen pressured
Nevertheless, there was some relief earlier in the week from the weaker-than-expected CPI and PPI data out of the US, which dented bets of aggressive Fed rate increases. And with Fed Chair Kevin Warsh refusing to provide any forward guidance on monetary policy, only one 25-bps rate hike is fully priced in right now.
Fresh hawkish Fedspeak did little to alter those expectations, although the US dollar did bounce back yesterday. Both Fed Vice Chair Phillip Jefferson and Dallas Fed President Lorie Logan said they would back higher interest rates if inflation doesn’t cool soon.
This pressured the yen, which is back within the 162.50 per dollar region, prompting Japan’s finance minister, Satsuki Katayama, to warn of “decisive action at any time”. The remarks were the strongest verbal intervention by Katayama for a number of weeks and come ahead of Monday’s bank holiday in Japan.
Later in the day, investors will watch the preliminary consumer sentiment survey for July by the University of Michigan.
By XM.com
