Another semiconductor sell-off

US stock index futures were firmer this morning following a selloff at the end of last week. Once again, semiconductors and AI-adjacent corporations lost ground as investors expressed further doubt over valuations as they struggled to work out the likely returns on AI investment.

There was also a bit of a ‘DeepSeek’ moment on Friday after a Chinese AI company, Moonshot, released its Kimi-K3 model, described by the company as the world’s largest open-weight AI system. The model is focused on coding, and demand has been so high that Reuters reports that Moonshot has had to pause new subscriptions.

Early last year, Chinese AI company DeepSeek disrupted the sector and sent NVIDIA’s share price sharply lower after it announced that it had produced its own Large Language Model at a fraction of the cost of US competitors and with similar functionality.

Last week, the S&P 500 lost 1.6%, the NASDAQ Composite fell 2.9%, the Dow declined 0.9%, and the Russell 2000 slipped 0.5%. The VanEck Semiconductor ETF dropped nearly 9%, marking its third weekly decline in four weeks and reflecting growing concerns that AI-related valuations may have become overstretched.

Source: TN Trader

The US military completed a ninth consecutive night of strikes against Iranian targets yesterday as part of a campaign aimed at limiting Tehran’s ability to threaten shipping through the Strait of Hormuz. Iran continues to respond, with missile attacks on US military bases within, but not limited to, the Gulf States. There is no indication that the two sides are ready to re-enter peace talks.

Meanwhile, traffic through the Strait of Hormuz is at a standstill. Brent crude topped $90 per barrel overnight, hitting its highest level in over five weeks.

Investors are preparing for a significant earnings week. Alphabet and Tesla are scheduled to report on Wednesday, while Intel releases results on Thursday. Last week saw strong earnings reports, along with upbeat forward guidance, for ASML, the Dutch manufacturer of chip-making machines, and TSMC, a manufacturer of chips vital for AI development. Yet investors simply shrugged their collective shoulders and sold both stocks.

Meanwhile, IBM pulled its earnings release date forward from this week and delivered a profit warning. The stock dropped 25% in a day. Is this a sign that wariness is not just creeping into investors' psyches, but now making itself at home? If so, this could be a problem as earnings unwind over the next month. But maybe it was the US investor's indifference to non-US corporations.

European stock indices got off to a positive start on Monday, following early gains for US stock index futures. Investors appeared to shrug off higher oil prices, believing them to be temporary, and therefore unlikely to feed into central bank interest rate calculations. This is important as the European Central Bank (ECB) holds a monetary policy meeting on Thursday.

The ECB is expected to keep rates unchanged, although the jump in the oil price since the start of this month may encourage policymakers to maintain a hawkish tone and keep the possibility of future rate increases on the table.

Corporate earnings remain in focus. European stock indices have less direct exposure to large tech corporations than their US counterparts. But many industrial firms and semiconductor suppliers rely heavily on spending from US tech giants. As a result, upcoming earnings and guidance from major US companies could have a significant impact on European sentiment.

It was also slightly concerning to see the indifference that followed ASML's blow-out results last week. The Dutch supplier of machines vital to manufacturing semiconductors also announced positive forward guidance, yet investors sold off stock, which may be a portent of things to come. On a separate issue, budget airline Ryanair dropped over 6% after a slump in quarterly profits and a warning of a difficult winter ahead.

Source: TN Trader

It was a very quiet start to the week across Forex, with little movement in the major pairs. The US dollar continues to find support as investors are still looking for a safety play due to the reescalation in US/Iran hostilities.

There are also concerns that the jump in oil prices since the start of this month could feed through to inflation, which would force central bankers to raise interest rates. For now, the Fed is perceived as the most hawkish, hence the fondness for the greenback.

The cash Dollar Index dropped back towards 100.00 last week following the release of softer-than-expected US inflation data. But it soon recovered and appears to have found some moderate support around 100.30-100.50. On Friday, Cleveland Fed President Beth Hammack said that rates may have to go up to counter persistently above target inflation.

As things stand, the market assigns little possibility to a rate hike at the end of this month. But there’s still an 80% chance of at least one 25-basis point increase before year-end, with a 60% probability that the first move comes in September.

The Japanese yen remained under pressure due to Japan’s heavy reliance on imported energy. Rising oil prices and concerns surrounding shipping disruptions through the Strait of Hormuz have weighed on sentiment toward the currency. But speculation that the Bank of Japan could maintain a gradual tightening bias helped limit losses. And there's still a danger for anyone involved in the yen carry-trade that policymakers stand ready to intervene to support the yen.

Meanwhile, the GBP/USD recovered modestly after a two-day decline but remained below recent highs. Andy Burnham has officially replaced Keir Starmer as Prime Minister and has sprinkled a bit of fairy dust over the hunched shoulders of his MPs. But at the time of writing, it was still unclear who would be his Chancellor of the Exchequer.

Source: TN Trader

Gold is struggling to establish a decent level of support. It had managed to push back above $4,000 on Friday, having dropped back below $3,960 in the early afternoon. Gold no longer acts as a safe-haven in times of geopolitical uncertainty.

Instead, that role is currently taken by the US dollar. And unfortunately for the gold bulls, a strong negative correlation between the US dollar and gold has built up ever since gold peaked to fresh all-time highs at the end of January, before its price collapsed.

Source: TN Trader

In addition, the crude oil price has surged this month as hostilities between the US and Iran have escalated, effectively shutting down the Strait of Hormuz once again. This has boosted speculation that the Federal Reserve will be forced to hike interest rates this year. Higher rate expectations tend to reduce the appeal of non-yielding assets such as gold.

Silver also remained under pressure. On Friday, it dropped below $55 per ounce to hit its lowest level since November last year. Like gold, silver continues to suffer from a robust US dollar, which has made substantial gains over the last six months.

Latterly, the dollar has been supported by a rebound in inflation expectations and the prospect that the Federal Reserve may have to hike rates before year-end. As things stand, silver is testing a major band of support beginning around $57 and stretching down to $54.

Source: TN Trader

Crude oil gapped higher overnight as US forces attacked Iranian positions for the ninth successive night. Iran claimed that it had immobilised two tankers in the Strait of Hormuz, while its Islamic Revolutionary Guard Corps has said that nothing will pass through the Strait without its permission.

Front-month (September) Brent broke above $90 per barrel and went on to top $91 overnight, a five-week high. But it then ran into some resistance, and prices pulled back during morning trade in Europe.

Source: TN Trader

The selloff came as Esmail Baghaei, spokesman for Iran's foreign ministry, indicated that negotiations between the US and Tehran could take place despite ongoing hostilities. But it's important to note that the Strait of Hormuz is once again effectively blocked. Iranian forces still have the firepower to attack shipping passing through, while the US continues to blockade Iranian ports.

If oil were to continue to rally, this could concentrate minds. After all, many countries have run down their strategic oil reserves over the past five months, and it's far from clear when China may return as a significant buyer.

For now, China appears to have plenty left of its original stockpiles, which have been built up over many years. Nevertheless, this month's sharp rally in crude has reignited concerns about inflation, creating an additional challenge for central banks that had recently seen signs of easing price pressures.

Bitcoin was firmer this morning and retesting resistance around $65,000. Cryptos got a lift from a modest rebound in investor sentiment as US stock index futures bounced back a touch, following a two-day selloff at the end of last week.

Despite this, rising oil prices and the possibility of higher inflation have increased concerns that the Federal Reserve could maintain tighter monetary policy for longer. Higher interest rates generally reduce demand for speculative, non-yielding assets such as precious metals and cryptocurrencies.

Investors face a busy week packed with economic releases, earnings reports, and central bank decisions. Attention will turn to UK inflation data on Wednesday, followed by the European Central Bank policy announcement on Thursday. Global purchasing managers’ index (PMI) data due on Friday will provide a fresh assessment of economic activity across major economies.

Corporate earnings will also play a crucial role in shaping sentiment. Alphabet and Tesla report on Wednesday, while Intel releases results on Thursday. Given the recent weakness in semiconductor shares, investors will be watching closely for signs that AI-related demand remains strong enough to justify current valuations.

Meanwhile, oil prices and developments in the Middle East are likely to remain dominant market drivers. Any further escalation could keep energy markets elevated, influence inflation expectations and shape central bank policy expectations heading into the second half of the year.

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