Market News

There aren't any major expiries to take note of on the day, with the full list seen below.

The market mood as we look towards European trading later is more defensive with all eyes on the rout in tech shares. It is a bloodbath in Asia and while European indices may not be as tech heavy in focus, that will only serve to put all the attention on US stocks later in the day.

S&P 500 futures are already down 0.3% with Nasdaq futures down 1.0% as the AI jitters look to permeate. And all this is setting the stage for a more nervous next few days, with big tech earnings on the agenda. As a reminder, Meta, Microsoft, Amazon, and Apple are among the feature names on the earnings calendar this week. So, that will be the make or break for the overall…

While renewed tensions in the Middle East continue to influence investor sentiment, gold is also facing headwinds from elevated US Treasury yields, a resilient US dollar and uncertainty surrounding the Federal Reserve’s next policy decision. 

Unlike previous geopolitical crises, military developments are no longer a major factor driving the precious metal. Instead, gold traders must assess how geopolitical events could influence inflation, interest-rate expectations and the US dollar—all of which ultimately shape gold’s direction.

With President Donald Trump delaying a major military escalation against Iran and the Federal Reserve set to announce its latest monetary policy decision on Wednesday, the precious metal could face a volatile week.

• Japan June core CPI +2.7% y/y
• Prior +2.7%
• Japan June core-core CPI +2.0% y/y
• Prior +2.1%

Just be wary though that in the case of the BOJ data set here, the core CPI estimate still includes energy but excludes fresh food and institutional factors. Meanwhile, the core-core CPI estimate also excludes energy from the equation. As such, the core-core CPI estimate is the more crucial one as it provides a better underlying picture of the inflation outlook.

Taking that into consideration, core prices continuing to stay high is no surprise especially after the surge back up in March and April. For some context, the core CPI estimate fell from a peak of 3.0% in August last year to 2.2% in February this year. That before climbing back up to 2.8% in April…

It's an ugly day for Asian equities to say the least as tech shares, chipmakers and semiconductors especially, are being taken to the cleaners. South Korea's benchmark KOSPI index is the standout, being down roughly 10% on the day. What a beating.

The drop there continues the fall from mid-June with the index down some 35% from the highs this year. That being said, even with the drop today we're only seeing it fall to the lowest since mid-April. And in the context of this year, the index is still well up by over 40% year-to-date. So, that speaks a lot to the breathtaking rally - mostly since March.

All that being said, there is quite a bit to digest from the chart above and the latest price action.

The drop in the past two weeks now confirms…

US treasury sells $16 billion of two-year notes at a high yield of 4.315%

• High yield 4.315%
• WI level at the time of the auction 4.320%
• Tail -0.5 basis points vs average of 0.1 bps
• Bid to cover 2.66X vs average of 2.63X
• Directs 34.05% versus average of 29.2%
• Indirects 56.59% versus average of 58.2%
• Dealers 9.36% versus average of 12.6%

AUCTION GRADE: B+

Solid auction with a negative tail, directs higher. Indirect modestly below the average. Dealers are saddled with less than average

• RBA's Bullock: Key question is whether tightening already delivered enough
• Kospi extends decline to 10%
• Japan finance minister: Mon pol has moved to world of interest rates
• South Korea June consumer sentiment 106.8 vs 106.6 prior
• Nucor beats estimates, but shares shrug it off
• FOMC preview: Realized volatility to come

Markets:

• Kospi -10.2%
• Nikkei 225 -4.2%
• S&P 500 futures -0.2%
• WTI crude oil down $1.36
• Gold down $25 to $4050

The FX market is largely unchanged after a disappointing day on Monday. The tone coming in was sombre after the optimism around Hormuz faded from the euro and antipodeans on Monday. Both had started the week strongly but couldn't hold on and finished near the daily lows. That hasn't extended into the new day as the euro bounced 12…

Not even the Governor knows what's coming next. That points to a healthy debate.

More comments:

• If board thinks inflation is not coming down, will have some difficult decisions to make
• Decision will depend on whether the board thinks policy is restricitve 

AUD was last at 0.6983 and doesn't seem bothered by today's comments.

Global markets are confronting sharp cross-asset turbulence as Asia leads a steep risk-off move, with South Korea's Kospi extending its decline to 10% after breaking key technical support.

As Adam Button at investingLive.com noted, this sudden double-digit slump is spilling into broader global risk sentiment just ahead of a critical monetary policy decision where the FOMC preview signals potential realized volatility under Fed Chair Kevin Warsh's unscripted meeting framework.

Meanwhile, precious metals are reacting to shifting geopolitical dynamics as gold tests its major daily downward trendline near the $4,200 resistance level amid Middle East ceasefire headlines, according to Giuseppe Dellamotta from investingLive.com.

On the US equity…

If the trillion dollars in capex spent on AI this year ends up being worth it, a big breakthrough needs to happen. Most likely, that will come from AI learning how to make AI better. That would be models that build better models.

In most people's thinking about this, that means AI will build smarter models that are better at things like drug discovery, and maybe they could get so smart they do things like curing aging or making ungodly amounts in the stock market. Or maybe they build the ultimate weapons.

The question is: How will we know when there is recursive AI? Hopefully Jensen Huang or Sam Altman or Dario Amodei tell us but my level of trust on that trio is mediocre. Also, I'm not sure AI is ever able to solve those things.

What I…

• Key question is whether tightening already delivered is enough to slow inflation

• Board ready to raise cash rate further if needed

• Policy operates with a lag, so full effects of this year's rate increases yet to be felt

• Best contribution policy can make is to maintain low, stable inflation

• Some further easing in growth of demand likely to be required to bring inflation down

• Some further easing in labour market will likely be required

• Economy overall has adjusted gradually and broadly as expected

• Policy can't address the economy's slow productivity growth

• Underlying inflation has evolved as expected, but still too high

• Hearing from business that non-labour cost pressures continue to pick up

• Housing market has eased by more than we had…

I wrote about how ugly the Kospi chart was earlier but it's certainly unfolding faster than anticipated. It broke the support of the July lows and the February interim high at the open today and it's been straight down since. It's extended the decline to 10% now.

A double-digit decline is the kind of thing that gets global attention and shifts the pain to the US market. It's definitely the kind of headline that hedge fund managers (and punters) in the US read about and take down risk.

Some notable movers:

• Samsung -10.5%
• SK Hynix -12.6%
• Hyundia -8.2%
• LG -5.1%

This is some 'black Tuesday' level selling and it's not pretty elsewhere in Asia:

• Nikkei 225 -4.4%
• CSI 300 -2.5%

I'm surprised S&P 500 futures are only down 0.2%.

• Don't think public-private investment target of 370 trillion yen is excessive
• Prices have been rising in a healthy manner
• Can't comment on source of funding food tax cut beyond what the PM said yesterday

Between the yen and rising Japanese yields/inflation, something has to give in Japan. There are people writing about 'the biggest bubble in history' and they're not wrong. One of the things that keeps the party going is faith in leadership to not do anything too crazy but the past couple iterations of Japanese leadership haven't exactly inspired my faith in fiscal discipline. Last year was a solid year for growth in Japan but I don't see any way they can grow their way out of the mess they're in.