Technology shares led global equity markets higher on Wednesday, with ASML's earnings reaffirming robust demand for advanced chips in the global AI infrastructure buildout.
The MSCI All-Country World Index edged up less than 0.1%. Europe's Stoxx 600 was little changed. Shares of chipmaking equipment giant ASML Holding NV surged as much as 8% in Amsterdam after it raised its sales outlook and announced plans to expand capacity, lifting other AI-related stocks. Markets had previously experienced significant volatility due to high valuations and concerns that AI investment expectations were running ahead of fundamentals.
In contrast, US and Asian markets, which have heavier weightings in tech stocks, showed stronger performance. S&P 500 futures rose 0.2%, while Nasdaq 100 futures advanced 0.5%.
"The divergence between US and European markets is still being driven by tech, which is outperforming again," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. "ASML's results were very good."
Intel shares gained in pre-market US trading after ASML indicated that Intel is using its most advanced equipment. PayPal shares surged 18% on reports that Stripe and Advent International are considering a takeover of the company.
Asian stocks rose 1.8%. In Seoul, South Korea's KOSPI index led gains, closing 6.2% higher. Shares of SK Hynix jumped 8.8%, catching up to prior gains in its American Depositary Receipts, while Samsung Electronics rose 6.3%. Japan's Nikkei 225 gained 1.5%, Taiwan's TAIEX rose 2.0%, and Hong Kong's Hang Seng Index advanced 1.4%.
"The data confirms that this cycle is still very much alive," said Guy Miller, chief market strategist at Zurich Insurance, adding, "I think the supernormal profits in parts of the semiconductor industry will continue."
"The rolling 5-day correlation between the Stoxx Europe 600 and Brent crude has turned negative again, suggesting renewed pressure on European equities from Middle East tensions," said Skylar Montgomery Koning, a macro strategist at Bloomberg.
She noted, "That relationship hasn't re-emerged for the S&P 500, which means it would likely take a much larger move in oil to really derail the US equity outlook."
Oil Prices Extend Gains for Third Day
Oil prices rose for a third consecutive session after the US military launched fresh strikes against dozens of targets near the Strait of Hormuz. Brent crude gained 0.8% to around $85.40 per barrel.
Transit through the Strait of Hormuz remains a central point of contention between Washington and Tehran. The US has reinstated a blockade on Iranian shipping.
"Although Trump withdrew the proposal for transit fees on vessels passing through the Strait of Hormuz, the resumption of conflict has pushed oil prices to about a one-month high," said Soojin Kim of Mitsubishi UFJ Financial Group. "Meanwhile, broader regional tensions have escalated further following Houthi attacks on Saudi Arabia."
Despite US assurances that the Strait remains open, the latest escalation has eroded market confidence in the waterway's security, reversing a previous strong recovery in Persian Gulf shipping volumes and threatening the export recovery for Gulf oil producers.
Despite uncertainty from the US-Iran standoff, investors noted that crude prices remain well below the highs above $100 per barrel seen earlier in the conflict. The current market focus is on whether corporate earnings can support lofty valuations. So far, early results from this earnings season have been positive.
"Investors understand that the path to peace is never a straight line," said Stephan Kemper, chief investment strategist at BNP Paribas Wealth Management. "Therefore, corporate fundamentals are more important than ever."
Cooler CPI Data Stimulates Dollar Movement
US and European bond yields inched higher. The yield on the 10-year US Treasury note rose 1 basis point to 4.60%. The two-year US Treasury yield edged up 1 basis point to 4.2% on Wednesday but remained about 9 basis points below the near 17-month high touched on Tuesday.
In European bond markets, Germany's two-year yield rose 1 basis point to 2.756% but stayed below the two-year high reached on Tuesday.
The dollar was choppy. The euro held above $1.14 on Wednesday. The Bank of Canada is also set to announce its interest rate decision later Wednesday. The Canadian dollar was largely steady, with the US dollar trading around C$1.4051.
Tuesday's CPI inflation data came in well below market expectations, prompting traders to scale back bets on imminent Federal Reserve rate hikes. Money markets have largely priced out a Fed rate hike this month, though expectations for a September hike remain elevated.
"For market bulls, this is even better than a 'Goldilocks' scenario," analysts at JPMorgan said in a client note. The bank argued the inflation data should eliminate concerns about a July Fed hike and may also ease worries about a September hike, creating conditions for stocks to continue and extend their rally.
"If you were looking for evidence of runaway inflation in this report, you didn't find it," said Jamie Cox, managing partner at Harris Financial Group.
He pointed out, "Any recent increase in inflation has been clearly linked to energy prices and is unlikely to last very long."
However, comments from Fed Chair Kevin Warsh to Congress that a single mild inflation reading is not enough to declare victory over inflation limited further market gains.
In a note, Jefferies economist Mohit Kumar said Warsh's attempt to build inflation-fighting credibility should be viewed separately from whether the Fed needs to hike rates immediately.
"Unless oil prices rise persistently and feed further into consumer prices, we still think inflation will continue to decline over the coming quarters," he said.
PPI and Warsh Testimony Become Next Market Focus
Investors will closely watch Warsh's testimony later Wednesday, along with the US Producer Price Index and the Fed's Beige Book, for further monetary policy clues. New York Fed President John Williams and Fed Governor Lisa Cook are also scheduled to speak at separate events.
"Any suggestion that this CPI reading was just an outlier could reawaken market fears of rate hikes," said Kemper.
He added, "This effect would be more pronounced if other Fed officials also start echoing Warsh's comments from yesterday that the inflation fight is 'not done.'"
Markets will also focus on earnings from Morgan Stanley, BlackRock, and Johnson & Johnson before the US market open. The earnings season for Wall Street's big banks started strongly, boosting risk sentiment.
Shares of Goldman Sachs, JPMorgan, and Bank of America all rose after reporting better-than-expected results, reinforcing expectations that corporate profits can still support high equity valuations despite economic uncertainty.
Spot gold fell 0.7% to $4,023.70, giving back part of Tuesday's more than 2% gain. Rising oil prices rekindled inflation concerns and added uncertainty to the US rate outlook, pressuring the precious metal.
Japanese retail investors have amassed a record net short position on the US dollar, with the total soaring to 2.79 trillion yen, the highest level since 2008, amid widespread speculation that Japanese authorities may intervene again to support the yen.
According to data from the Financial Futures Association of Japan, retail traders' net short dollar position surged more than threefold from the previous month to 2.79 trillion yen (approximately $172 billion), the largest on record since data began in late 2008.
While these bearish bets could involve other currency pairs, the large size of yen-related open interest suggests the focus is primarily on USD/JPY positions.
Famed economist Nouriel Roubini, known as "Dr. Doom" for his pessimistic forecasts, has warned that inflation remains the biggest risk to markets, with key drivers including geopolitical tensions, deglobalization, and increased government spending. Roubini warned that long-term bond yields could see dramatic moves if inflationary trends persist.
He stated that if the US Consumer Price Index reaches 5%-6%, the 10-year US Treasury yield could move "close to" 8%. This would be the highest level since 1994, a significant rise from the current level of around 4.58%.
He said that besides market factors, other structural forces could also push yields higher. For instance, rising government debt levels mean the Treasury needs to issue more bonds. If demand does not grow in tandem, increased bond supply will lead to higher yields.
The probability of a Fed rate hike in July has been halved, potentially providing a "timely relief" for US stocks.
Data released Tuesday showed the US Consumer Price Index rose 3.5% year-over-year in June, below the market expectation of 3.8% and down significantly from the previous 4.2%. It fell 0.4% month-over-month, the first monthly decline in six years. Core CPI, excluding food and energy, rose 2.6% year-over-year, also below the expected 2.8%; the monthly increase was 0%, significantly slower than the previous 0.2%. This better-than-expected inflation data has cooled market expectations for Fed rate hikes.
Traders have reduced bets on a July Fed hike. Currently, the market-implied probability of a 25-basis-point hike at the July 28-29 meeting has fallen from a previous 35% to about 15%. Expectations for a September hike have also receded, now around 70%, down from over 90% previously.
Market analysis suggests that weaker inflation reduces the urgency for the Fed to tighten policy further in the near term, boosting market risk appetite.
A sharp surge in a key margin debt indicator carries an ominous historical pattern.
The Financial Industry Regulatory Authority (FINRA) compiles this statistic. The latest complete data for May shows total investor margin debt soared 53% year-over-year. In US stock market history, annual margin debt growth exceeding 50% has occurred only ten times.
In nine of those previous instances of sharp increases, they almost entirely preceded major market declines, including the two modern financial disasters: the 2000 dot-com bubble burst and the 2008 housing crisis that triggered the global financial crisis. The sole exception was the rapid market rebound following the 2020-2021 pandemic lockdowns.
In 8 of those 9 historical cases, the market closed lower one year after the margin debt surge.
A rapid rise in margin debt does not guarantee a market crash, as evidenced by the 14% gain in 2021. However, combined with historical data, investors should remain cautious, as the signal is overall bearish.
This is a historical pattern, not a certainty, and should not be used as the sole reason to liquidate all holdings. A key point: even if the signal predicts a correction is coming, it cannot indicate the timing, magnitude, or duration of the decline.
Key Stocks in Focus
BlackRock shares surged more than 4.5% after reporting better-than-expected earnings. Adjusted earnings per share came in at $13.91, beating the market consensus of $12.59 compiled by LSEG. Revenue also exceeded analyst estimates.
Water treatment equipment maker Pentair PLC saw its shares plunge over 14% after releasing preliminary second-quarter results that fell short of Wall Street expectations. According to FactSet data, the company expects adjusted EPS of $1.12, well below the analyst consensus of $1.48.
Morgan Stanley shares rose 1.5% after its second-quarter earnings set a new record for quarterly revenue and profit. Adjusted EPS was $3.46, compared to the $2.94 expected by LSEG-surveyed analysts.
Despite reporting better-than-expected second-quarter results, Johnson & Johnson shares fell over 1% in pre-market trading. J&J reported adjusted EPS of $2.90 and total revenue of $25.31 billion; the LSEG-compiled analyst consensus was for EPS of $2.85 and revenue of $25.05 billion.
Payment company Stripe and private equity firm Advent have proposed a $53 billion acquisition of PayPal, sending the digital payments platform's shares soaring 19%. Reuters, citing two people familiar with the matter, reported the offer values PayPal at $60.50 per share and was submitted earlier this month.
Dutch semiconductor equipment maker ASML Holding NV reported better-than-expected quarterly results and raised its full-year guidance again, with shares up 3%. The company increased its full-year sales outlook and raised its full-year gross margin forecast from a previous 51%-53% to 54%-56%.
IBM shares gained over 1%. On Tuesday, IBM released preliminary second-quarter results that missed expectations, causing its stock to tumble 25%, marking its largest single-day decline on record.
Despite Elevance Health reporting second-quarter revenue above market consensus and slightly raising its full-year profit guidance—with the guidance slightly exceeding expectations—the stock still fell 7%.
Regional bank M&T Bank shares rose 2% after its second-quarter profit exceeded expectations. The company reported EPS of $5.32, compared to the FactSet consensus estimate of $4.66.
Bank of New York Mellon reported second-quarter profit and revenue that beat expectations, but its shares fell 1%. The bank now expects double-digit revenue growth by 2026 but also anticipates expense levels to be higher than previously forecast.
Comments