Market Snapshot Before the Bell
On Friday, July 31, all three major US stock index futures were trading higher before the market opened. As of writing, Dow futures were up 0.54%, S&P 500 futures advanced 0.34%, and Nasdaq futures gained 0.94%.
Global Market Pulse
European indices were in the green, with Germany's DAX rising 0.45%, the UK's FTSE 100 edging up 0.18%, France's CAC 40 adding 0.79%, and the Euro Stoxx 50 climbing 0.76%.
In the commodities space, WTI crude oil surged 2.12% to $85.36 per barrel, while Brent crude increased 1.92% to $88.55 per barrel.
Key Market Developments
The $16 billion 'forced liquidation' of leveraged positions has been completed. Citadel's move to buy the distressed portfolio of Situational Awareness has sparked a fierce debate on Wall Street: Is this the end of the worst AI sell-off, or is it the beginning of a new wave of cascading liquidations? The deal helped trigger a massive, emotional rebound in AI-related stocks, particularly semiconductor names. Some analysts believe the forced liquidation of almost all of Situational Awareness's public AI positions helps explain the relentless deleveraging and selling pressure in the global semiconductor sector throughout July. Before retail and professional traders cut their borrowing, margin financing in South Korea's financial markets had hit record highs. With Citadel taking over the bulk of the liquidated portfolio, the market no longer has to absorb the piecemeal selling from a highly leveraged hedge fund, paving the way for short-covering, dealer hedging adjustments, and a return of fundamental capital.
The AI engine has restarted, propelling European stocks to record highs. The pan-European Stoxx 600 index hit an all-time high during Friday's session, driven by a global tech rally and a recovery in AI investment sentiment. The tech sector surged over 2%, mirroring the strong performance in US and Asian markets. Florian Ielpo from Lombard Odier Investment Managers commented, "The most violent phase of position liquidation is likely over. From a valuation perspective, it's more reasonable now than a month ago, though it's not cheap. This doesn't mean the end of the AI trade, but rather the end of the easy 'buy-and-whatever' phase."
Japan may have spent around $52.8 billion to intervene in the currency market on Thursday, leading to the yen's biggest single-day rally in nearly three years. Data from the Bank of Japan and market forecasts suggest the intervention amounted to about 8.45 trillion yen. The yen jumped approximately 3.3% against the dollar during the New York trading session, its largest gain since December 2023. Market participants noted that US authorities also made a "rate inquiry" around the same time, indicating communication between the two sides amid heightened volatility. The scale of the suspected intervention far exceeded market expectations, reflecting Tokyo's heightened alertness to the yen's excessive depreciation.
South Korea is also suspected of conducting a rare dollar-selling intervention, leading traders to believe a coordinated effort with Japan was underway. Market sources say South Korean foreign exchange authorities intervened on Thursday, pushing the won to a nine-month high. This action coincided with Japan's dollar-selling, yen-buying intervention in New York, which pulled the yen back from its 40-year low. The won strengthened 2% to 1,418.0 per dollar, its strongest level since October 20. The currency has risen over 8% this month, on track for its biggest monthly gain since March 2009. A South Korean foreign exchange trader said the market suspects a joint intervention, as the two countries had previously stated they would closely coordinate.
Global equity funds attracted over $27 billion in net inflows for the week ending July 29, the highest in three weeks. Investors took advantage of the recent pullback to increase their bets on AI-driven growth. US equity funds reversed two consecutive weeks of outflows, with net purchases of approximately $11.8 billion. European and Asian equity funds recorded net inflows of about $7.8 billion and $5.4 billion, respectively. Technology sector funds saw net inflows of about $5.7 billion, the largest weekly amount since July 8. While Alphabet and Tesla had previously sparked concerns with their cash flow data, strong earnings from Microsoft and Amazon significantly eased investor anxiety over AI capital expenditure, driving a sector recovery. Global bond funds recorded net inflows of about $6.2 billion, a 17-week low. High-yield bond funds saw net outflows of about $800 million, largely reversing the previous week's purchases. For precious metals, gold and silver funds saw net inflows of about $280 million for the third consecutive week. In emerging markets, equity funds recorded net inflows of about $1.8 billion for the third straight week, but bond funds saw outflows of about $800 million.
Security alerts are sounding in the AI industry. Anthropic disclosed that its AI model, Claude, breached the systems of three companies during testing. This came just days after competitor OpenAI reported a similar incident where its AI agent autonomously infiltrated the Hugging Face platform. In a blog post, Anthropic stated that the issue was discovered during a review of its own cybersecurity tests following the OpenAI incident. The company reviewed 141,006 test evaluations and found that its Claude AI tool had accessed the internet and breached the "real-world infrastructure of external organizations" on three separate occasions. The earliest incident occurred in April. Due to a communication breakdown between Anthropic and its evaluation partners, the test system was inadvertently connected to the public internet, allowing the model to make unauthorized intrusions into the systems of three unnamed organizations.
Stock-Specific Movements
US semiconductor stocks continued their rally in pre-market trading on Friday, following the previous day's rebound. As of writing, SK Hynix was up about 7%, while SanDisk and Western Digital gained 6%. Micron Technology and Intel both rose 5%, and AMD added 4%. South Korea's KOSPI index closed 18% higher on Friday, dramatically reversing a three-day decline and marking its largest single-day percentage gain in history.
Executives at Samsung Electronics and SK Hynix are buying their own company's stock. After SK Group Chairman Chey Tae-won purchased SK Hynix shares worth about 4.8 billion won, Samsung Electronics Co-CEO and DX Division Head Roh Tae-moon also bought shares worth about 700 million won. According to a disclosure from South Korea's Financial Supervisory Service, Roh purchased 3,045 shares at 230,000 won each, increasing his total holdings to 124,280 shares.
Tesla is rumored to be considering divesting its China business to pave the way for a potential merger with SpaceX. However, a Tesla China spokesperson dismissed the report as "untrue information." Elon Musk himself also called the story "fake news" on social media. The report, citing a source, claimed some Tesla executives had been told to prepare for this, and that advisors had discussed options including a spin-off, sale, or closure of the China business, including the Shanghai factory. The rationale was to resolve potential conflicts of interest from SpaceX's work as a major US defense contractor.
Alibaba's Tongyi Qianwen AI model is reportedly being tested in Tesla vehicles. While ByteDance's Doubao AI assistant has already been integrated into some new Tesla cars, sources say that Alibaba's Tongyi Qianwen has also entered deep testing in Tesla's China-specific vehicle infotainment systems. The model is being tested for capabilities like voice interaction, vehicle control, navigation, and task execution, potentially offering far more than a simple voice assistant. Neither Alibaba Cloud nor Tesla China has officially commented on the timeline for the launch.
Apple CEO Tim Cook addressed memory chip price increases during the company's earnings call. He said the company is evaluating all options as memory prices rise. He noted that the DRAM market is controlled by only three suppliers, and having more suppliers would help improve supply and pricing. He also announced that Apple's global paid subscriptions have surpassed 1.5 billion.
The cost of the AI arms race is rising. CoreWeave, a prominent AI cloud computing startup, faced higher borrowing costs for a critical debt deal. The company had to increase the interest rate on a $2.6 billion leveraged loan issuance by 100 basis points, adding an estimated $30 million in annual interest expenses. Despite the higher cost and adjusted terms, the deal still attracted about $9 billion in orders, indicating persistent interest in AI infrastructure assets.
The two largest US oil companies, ExxonMobil and Chevron, reported a combined net profit of $26.5 billion for the second quarter. This comes as a result of higher oil and gasoline prices following the Trump administration's military actions in Iran. While these massive profits are likely welcomed by investors, they could also put the companies on a collision course with President Trump, who has previously accused the energy industry of "price gouging." Chevron's second-quarter net profit of $12.2 billion was about five times higher than the same period last year, a record for the company. ExxonMobil's net profit of $14.5 billion doubled year-over-year, its best quarterly performance since the start of the Russia-Ukraine conflict in 2022.
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