US stock index futures were mixed, with Dow futures up 0.08%, S&P 500 futures up 0.2%, and Nasdaq 100 futures down 0.01%. Memory chip stocks extended their losses, with Micron Technology and SK Hynix both falling over 1%, and SanDisk down over 2%. An Iranian attack on US forces propelled oil prices up more than 3%.
A strong sense of caution prevails in the market, as investors focus on the Federal Reserve's interest rate decision early Thursday morning and earnings reports from Meta and Microsoft. Concerns over returns on AI investment continue to weigh on the tech sector, while escalating tensions in the Middle East have boosted oil prices.
On Wednesday, US stock index futures were mixed. Dow futures rose 0.08%, S&P 500 futures gained 0.2%, and Nasdaq 100 futures slipped 0.01%. In US pre-market trading, memory chip stocks continued their downtrend, with Micron Technology and SK Hynix each falling over 1%, and SanDisk down more than 2%.
In South Korea, the KOSPI index closed down 6%. Despite SK Hynix’s second-quarter net profit surging 557% year-over-year, it still fell short of high market expectations, causing its stock to plummet 9% and dragging the KOSPI down as much as 13% intraday. Samsung Electronics, set to report earnings on Thursday, saw its shares drop over 5%.
Meanwhile, according to CCTV News, the US Central Command announced it successfully intercepted a ballistic missile attack launched by Iran against US forces in the Middle East. Brent crude oil subsequently jumped over 3%, ending a three-day losing streak. The risk of energy supply disruptions has complicated the inflation outlook, just as the Federal Reserve is set to announce its interest rate decision, further increasing uncertainty.
Key market movements are as follows:
Dow futures up 0.08%, S&P 500 futures up 0.2%, Nasdaq 100 futures down 0.01%.
Europe's STOXX 50 index opened up 0.14%, Germany's DAX index up 0.16%, UK's FTSE 100 index up 0.44%, France's CAC 40 index up 0.27%. Kering's European shares rose 10% after Gucci's second-quarter same-store sales fell 2%, a narrower decline than expected. Eni (Eni) rose as much as 5% after announcing an increased share buyback program.
Japan's Nikkei 225 index closed down 1.5% at 61,434.19 points. Japan's TOPIX index closed up 0.3% at 3,974.03 points. South Korea's KOSPI index closed down 5.99% at 5,663.08 points.
The yield on the US 10-year Treasury note was flat at 4.61%.
The US dollar index was nearly flat.
Brent crude oil surged over 3%, last trading at $84.57 per barrel.
Spot gold rose 0.24% to $4,038 per ounce.
Bitcoin rose 0.8% to $64,377.
Federal Reserve Decision Looms, Debate Over Rate Hike Probability
Ahead of the Federal Reserve's decision, the market is in a wait-and-see mode, with US stock index futures mixed.
The market currently prices in about a 70% probability that the Fed will hold rates steady this Wednesday, with the current target range at 3.5% to 3.75%.
Analysts at JPMorgan believe the probability of a rate hike "is likely lower than the roughly 30% currently priced by the market," citing that "while inflation is elevated, there is no risk of it exploding further." The bank assigns a 50% probability to a "hawkish hold," suggesting the Fed will remain vigilant while noting the disinflationary signals from recent energy price trends.
Julia Hermann, Global Market Strategist at New York Life Investment Management, warned, "We believe the market is placing too much weight on inflation risks and not enough on the economic cost of further tightening," adding that if the Fed signals a more hawkish stance, "the sectors currently leading the fragile market rally would be the most impacted, rather than the overall market."
Big Tech Earnings Season Enters Critical Phase
This week's earnings season enters a critical window. Microsoft and Meta are set to report results after the bell on Wednesday local time, followed by Apple and Amazon on Thursday local time.
Meanwhile, positive signals have emerged. Ford Motor's quarterly results beat Wall Street expectations, and the company raised its full-year outlook for the second time, benefiting from strong sales of high-margin SUVs and higher prices. Its shares rose about 4% in after-hours trading.
Additionally, according to Bloomberg, Nvidia CEO Jensen Huang publicly defended open-weight AI systems, stating they are crucial for advancing the AI industry. Meta and BlackRock are planning to jointly build a data center complex in Texas with an estimated cost of around $14 billion and a capacity of 1 gigawatt.
Chip Stocks Hit by 'Expectation Trap'
SK Hynix's earnings, while dramatically exceeding historical levels, still disappointed the market, reflecting a deep-seated contradiction in the current technology investment logic – market expectations for AI-related companies' earnings have been pushed to extremely high levels, leaving any slight miss vulnerable to triggering large-scale sell-offs.
"Given the weighting of SK Hynix and Samsung in the KOSPI, there's no safe haven when both fall simultaneously," said Josh Gilbert, Chief Analyst at eToro for the Asia-Pacific and Middle East regions.
SK Hynix has set its capital expenditure target for this year at no less than $31 billion, a record high. Last week, Alphabet raised its full-year capital expenditure forecast to up to $205 billion. Whether these massive investments will translate into commensurate returns is becoming a core market question.
Rajeev De Mello, Global Macro Portfolio Manager at Gama Asset Management SA, believes, "Concerns about excessive AI optimism initially triggered the semiconductor sector's pullback, but the latest accelerated decline appears more driven by positioning, forced liquidations, and investor sentiment than by fundamentals." Sanjeev Rana, Head of Research at CLSA Securities Korea, argues that Hynix's earnings miss was due to a weaker-than-expected second-quarter product mix, rather than any substantive deterioration in demand.
Middle East Conflict Re-ignites Oil Prices
Brent crude oil rose 3.4% to around $87 per barrel, while WTI crude oil futures similarly climbed about 4% to around $82 per barrel, ending a three-day losing streak – during which Brent had recorded its largest three-day drop since April 2020 amid a brief period of relative calm.
The direct catalyst for this oil price rebound was a statement from the US Central Command. According to CCTV News, on the 28th local time, the US Central Command stated that at 5:45 PM Eastern Time, Iran's Islamic Revolutionary Guard Corps launched multiple ballistic missiles from Iranian territory, "attempting a surprise attack on US forces stationed in the Middle East."
Ryan McKay, Senior Commodity Strategist at TD Securities, said, "We remain cautious about any potential agreement that does not specifically address the Hormuz issue, because previous disagreements over control of the Strait have led to aggressive Iranian actions and caused a prior memorandum of understanding to collapse prematurely."
Before this escalation in tensions, Bank of America had already downgraded Exxon Mobil to a "neutral" rating, citing downside risks to oil prices if a US-Iran ceasefire is reached, and limited upside given that approximately 20% of Exxon's global production is exposed to disruptions through the Strait of Hormuz.
Comments