Semiconductor Volatility and Geopolitical Tensions Shape Global Markets
By Anna Szymanski
July 17 (Reuters) - From the Editor
Market Reactions to Semiconductor and Geopolitical Developments
Hello Morning Bid readers!
Semiconductor Sector and Asian Market Volatility
We can’t seem to get away from semiconductors and straits.
Asian stocks continued to tumble this week even after tech giants like Taiwan’s TSMC reported blockbuster numbers. While these ructions may indicate concerns about the durability of hyperscalers’ massive AI capex outlays – and thus chipmakers’ eye-popping profits – the volatility in Asia likely also reflects the unwinding of leveraged positions.
Korea’s KOSPI and Leveraged ETF Impact
Korea’s KOSPI – which is dominated by chipmaking giants Samsung and SK Hynix – tumbled 6% on Thursday, down roughly a quarter from its June peak. The extreme volatility seen in this index recently – the highest since late 1998 when the market was rocked by the LTCM crisis and Russian debt default – may partly reflect the growth of leveraged ETFs in South Korea. The country’s financial regulator on Thursday announced measures aimed at controlling the use of these products.
U.S. Semiconductor Index and Tech Stock Movements
U.S. markets were also jumpy this week. The Philadelphia Semiconductor Index is now down almost 13% in the month – though it’s still up over 70% on the year. Interestingly, as uncertainty around the durability of the AI narrative rises, so too does investor conviction on either side of the debate.
SpaceX and Tech IPO Performance
In other tech stock news, SpaceX on Wednesday saw its share price fall briefly below its public offering price of $135 for the first time. The company’s share price has fallen over 30% from its record close in the immediate days after the public sale raised a record $75 billion on June 11.
U.S. Banking Sector and Wall Street Earnings
Staying on Wall Street, the U.S. big banks announced bumper second-quarter earnings this week. Mega-IPOs and other big deals boosted investment banking profits, while market volatility kept trading desks humming. JPMorgan and Goldman Sachs were big winners, while Citigroup saw its share price fall even as it reported its highest quarterly earnings in a decade, as investors raised concerns about its rising expenses and outlook.
Geopolitical Tensions and Energy Markets
U.S.-Iran Conflict Escalation
Moving to geopolitics, Iran and the U.S. appear to be entering a dangerous new stage of fighting, as President Donald Trump notified Congress last weekend of the formal resumption of the conflict. The U.S. military has now launched six consecutive nights of attacks and reimposed its naval blockade of Iran's ports following Iran’s closure of the all-important Strait of Hormuz last Saturday. Iran has also struck multiple U.S. military bases across the region, with Tehran's top negotiator Mohammad Baqer Qalibaf stating that Iran is "in an essential and existential war with America."
Trump on Tuesday threatened to hit Iranian power plants and bridges next week unless Tehran resumes negotiations. On the one hand, these threats sound awfully similar to those he made just before the interim peace agreement on June 17 and the initial ceasefire in April.
Potential for Broader Conflict and Market Implications
However, the recent U.S. strikes on Iran also look like they could be setting the stage for a more complex operation based on the targets being selected. (For a look at why superior military force may not determine the victor in this conflict, check out the latest ROI weekend read from Clyde Russell.)
Energy Market Response and Risks
Energy traders don’t appear worried, however. While crude prices have risen more than 12% this week so far, they remain relatively contained, suggesting that traders think that the conflict will soon de-escalate and that energy markets can handle another short-term closure of the Strait of Hormuz.
But that might be a miscalculation because when the war broke out in February, global oil inventories were flush, and that is no longer the case. Moreover, alternative transit options may also be impacted this time around, as Iran has asked Yemen’s Houthis to close the Red Sea oil route if the U.S. strikes Iranian power infrastructure.
China’s Role in Energy Markets
Energy markets are also pondering China’s next move. The country’s dramatic slashing of its crude oil imports has been credited with keeping prices from spiking during the Iran conflict. But investors are now asking whether the world's biggest oil importer can do the same for the refined products markets – especially if the conflict escalates.
One thing does seem clear: the Hormuz crisis has revealed how much China’s role in the global energy system has changed, as it has shifted from being a price taker to a price maker.
China’s Economic Performance and Domestic Challenges
Still, China faces a complex set of economic challenges at home, which were highlighted in a raft of economic data this week. On the one hand, both its exports and imports topped analyst forecasts in June, largely thanks to strong shipments and purchases of semiconductor chips, other technology equipment and automobiles.
However, China's economy grew by only 4.3% in the second quarter, which was below both market expectations and Beijing's official target. Domestic consumption remains a concern, and the property sector is still weak, with house prices down 3.5% year-over-year in June.
U.S. Inflation Data and Economic Outlook
Finally, there was positive news on the U.S. inflation front, as core price increases came in lower than expected at 2.6% year-over-year compared with 2.9% last month, with producer prices also surprising on the soft side. But as Federal Reserve Chair Kevin Warsh noted, it’s far from “Mission Accomplished,” especially given that fighting in the Middle East could push up oil prices again, which could ultimately boost prices in other areas.
Looking Ahead: Earnings and Economic Data
Looking to next week, the economic data diary will be sparse, but earnings season will continue, with Tesla, Alphabet and Intel a
