By Jamie McGeever
ORLANDO, Florida, July 28 (Reuters) – European and U.S. stock markets on Tuesday shrugged off a deep slump in Asia earlier in the day, following another sharp fall in oil prices and growing optimism around peace talks between the U.S. and Iran, while investors also awaited key tech earnings and the Federal Reserve’s policy decision.
In my column today, I look at whether high and rising bond yields will slam the brakes on Wall Street. Intuitively, there’s a good chance. But if rising borrowing costs are a reflection of stronger nominal growth and a healthy economy, then not necessarily.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Bar to Fed rate hike this week remains high even as markets see a chance
2. U.S. bond market avoids big rate bets as inflation dims Fed outlook
3. Central banks can’t “see through” this many inflationary risks: Mike Dolan
4. Market warning signals flare again as tech, inflation fears intensify
5. Asian chip stocks slide as China competition fears rattle AI trade
Today’s Key Market Moves
• STOCKS: South Korea tanks 11%, Japan -4%. Europe +0.4%, UK +0.9%. Dow +1% to within 1% of its record high.
• SECTORS/SHARES: Seven sectors on the S&P 500 rise, four fall. “SOX” chip index -4.5% to 3-month low. Healthcare, consumer staples +2%. Sherwin-Williams +8%, Coca-Cola and Boeing +5%; Apple market cap briefly tops $5 trillion; Sandisk -14%, now -55% in a month.
• FX: Dollar hits 1-month high but ends slightly lower. NOK -0.5%, CLP +1%.
• BONDS: U.S. yields down 3-4 bps across the curve; another weak U.S. auction, this time 7-year.
• COMMODITIES/METALS: Oil -5% to 2-week low, WTI and Brent both down 16-18% since Thursday. Gold -1%.
Today’s Talking Points
* AI CDS
The cost of insuring against many of the biggest of the Big Tech firms defaulting is soaring to the highest in years. In some cases, like Meta, Oracle, Nvidia and Amazon, the highest on record. Granted, some of these companies had no debt on their books at all until recently, but the speed and magnitude of the move is quite something.
Will these firms ever default? Unlikely. Despite the growing debt load to fund AI spending, they’re still massive cash-generating enterprises. Microsoft has a triple-A credit rating, higher than the U.S. federal government. But the signal CDS traders are sending is clear — AI capex is reaching bubble territory.
* Rotation, rotation, rotation
The U.S. semiconductor index is technically in a bear market, down 25% from its high on June 22. Yet the Dow is less than 1% from its record high, and the S&P 500 is 2% away from its peak. The resilience is impressive, especially considering the churn and selling is most pronounced in the sectors and megacap names that have powered Wall Street’s rally until recently.
