By Mike Dolan
July 28 (Reuters) –
What matters in U.S. and global markets today
By Mike Dolan, Editor-at-Large, Finance and Markets
The chip stock correction snowballed again overnight amid growing concerns about rising competition and circular financing.
This comes ahead of a set of critical earnings reports from tech companies on Wall Street and in Asia – and it comes despite a further slump in oil prices below $90 per barrel amid the tense pause in the Iran conflict.
I’ll get into that and more below.
But first, check out my latest column, where I outline the many inflationary drivers that central banks may increasingly struggle to “see through”.
And listen to the latest episode of the Morning Bid daily podcast, where we discuss the many causes of the latest chip selloff.
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CHIP ROUT SNOWBALLS
Stock markets remained on edge on Monday and heading into Tuesday due to a host of catalysts. One was a sharp drop in shares of U.S. chip giant Nvidia – partly on reports of another round of circular financing with OpenAI.
Another possible trigger was the blowout IPO of China’s CXMT on Monday – a first-day jump of nearly 470% that unveiled a new chip giant ready to soak up investment funds.
Meanwhile, reports that Chinese firms are developing chipmaking technology that apes ASML’s dominant offering sent the European tech giant’s shares down sharply on Monday.
U.S.-listed shares of South Korea’s SK Hynix fell back below their recent debut price on Monday, ahead of its quarterly update tomorrow, while Seoul’s volatile KOSPI index plummeted nearly 11% on Tuesday to post its biggest daily loss in nearly five months. Rival chipmaker Samsung Electronics, which is also down sharply, is likewise set to report this week.
Both companies’ earnings are coming amid reports of heavy capex by hyperscalers to build out their AI infrastructure. The size of that spending, and the cash burn that goes with it, look to be the big theme of the hyperscaler earnings season. Credit markets are watching warily.
On the energy front, oil slid further heading into Tuesday to around $86 per barrel. U.S. President Donald Trump said on Monday that the U.S. was having “good talks” with Iran and that a deal was possible but reiterated familiar warnings that strikes would resume if negotiations go nowhere.
Those energy price gyrations will no doubt be a point of discussion at the Federal Reserve’s two-day policy meeting, which starts today.
Despite the latest oil price retreat, futures markets still see the Fed gathering as a “live” one, with a one-in-three chance of a rate hike priced in. An increase in rates by September is now seen as essentially a certainty in markets.
Chart of the day
Another rout in global chip stocks is unfolding ahead of this week’s U.S. megacap tech earnings, with growing unease at the cash burn of the so-called hyperscalers, which are spending hundreds of billions building out their AI infrastructure.
The scale of the debt being incurred is now starting to unnerve stock and credit markets alike, with borrowing from Big Tech firms this year now almost twice what it was last year. Higher capex from here will likely mean even higher debt loads.
Today’s events to watch
• U.S. July consumer confidence (10 a.m. EDT), 7-year note auction (1 p.m. EDT)
• Fed policy meeting begins
• U.S. corporate earnings: Boeing, Coca-Cola, Ford, PayPal, Visa
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(By Mike Dolan)
