Pre-market Movers

As of Tuesday, July 28, before the US market open, futures for the three major indices showed mixed performance. The Dow Jones Industrial Average futures rose 0.69%, the S&P 500 index futures added 0.02%, and the Nasdaq 100 futures fell 0.89%.

European markets were also mixed, with Germany's DAX down 0.15%, the UK's FTSE 100 up 0.44%, France's CAC 40 up 0.10%, and the Euro Stoxx 50 down 0.19%.

In commodity trading, West Texas Intermediate (WTI) crude oil fell 0.98% to $81.80 per barrel, while Brent crude dropped 1.44% to $84.63 per barrel.

Global Chip Stocks Face "Black Tuesday"

A sharp sell-off in global chip stocks occurred on Tuesday, with South Korea's KOSPI index plunging over 10%, triggering a 20-minute trading halt. The sell-off was sparked by growing investor concerns about the sustainability of the artificial intelligence (AI) boom, amplified by an over $750 billion trading strategy involving Nvidia (NVDA.US).

Japan's tech-heavy Nikkei 225 and Taiwan's Taiex index both fell by about 4%. The decline reflects heightened fears about over-concentrated positions in the AI building cycle and rising corporate debt levels. Nvidia's massive transactions have further fueled worries that AI demand might be artificially inflated. Simultaneously, progress by Chinese competitors in the tech field is adding pressure to an already highly-valued market.

Fitch Issues Direct Warning on AI Market Risk

Fitch Ratings has issued a stark warning, stating that the AI boom and its potential correction are becoming a major global credit risk. This intensifies concerns about sky-high tech valuations and unprecedented spending before future returns are certain. In its Q3 global risk outlook, Fitch said credit conditions are primarily influenced by two short-term risks: rising vulnerability to AI-related market adjustments and ongoing uncertainty related to the US-Iran conflict. The agency reiterated recent warnings from global regulators that the AI boom is increasingly intertwined with economic growth and capital markets, especially in the US, raising the risk of a significant sell-off. Fitch noted, "The scale of AI investment is so large that the economy and overall capital markets are quite exposed to such an adjustment."

Is the Fed's Hawkish Turn Underestimated? Citadel Securities Bets on Surprise Rate Hike

The Federal Reserve's two-day meeting begins Tuesday, with a rate decision expected Wednesday. While the market overwhelmingly expects the Fed to hold rates steady, Citadel Securities is betting on a quarter-point rate hike this week. The firm's macro strategy head, Frank Flet, argues such a move would bolster Fed Chairman Kevin Warsh's credibility on inflation. He stated in a report that a hike would reaffirm Warsh's commitment to price stability and signal that policymakers are moving away from providing explicit forward guidance on every policy move. Flet said, "The market may again be underestimating the degree of the Fed's hawkish shift," adding that a hike this week would "decisively end the era of forward guidance" while highlighting the Fed's independence.

South Korea Pledges Further Action on Leveraged ETF Demand

South Korea's Financial Services Commission (FSC) Chairman Lee Eog-weon stated that if new restrictions fail to curb demand for leveraged ETFs, further measures will be taken, including setting investment limits for retail investors. In a statement, the FSC said it would consider tightening investment requirements if measures effective from July 31 are insufficient. The regulator is also speeding up plans to increase the minimum trading unit. Options being considered include mandatory online training with simulation trading and limiting retail investment in leveraged ETFs to a specific percentage of total assets. This comes as a depressed local market drives retail investors towards US stocks, with net purchases exceeding 5 trillion won this month.

Oman Proposes Joint Management for Strait of Hormuz

According to Gulf sources, Oman has proposed to Iran a joint regional mechanism for managing the Strait of Hormuz, with voluntary fees for users. The plan, which has regional support, is based on the Strait of Malacca model where users pay voluntarily for navigation safety, environmental protection, and search and rescue. Under this proposal, Iran would not control the strait alone.

Key Stock Stories

SK hynix (SKHY.US) is set to report its first quarterly earnings since listing on the Nasdaq after the market close on Tuesday. While expected to be one of its most profitable quarters ever, driven by AI demand for high-bandwidth memory (HBM), the stock has fallen over 30% in the past month. The market is closely watching if the earnings can restore confidence.

Apple (AAPL.US) regained the title of the world's most valuable company on Monday, surpassing Nvidia. Apple's market cap closed at $4.95 trillion, compared to Nvidia's $4.77 trillion. The shift reflects investor preference for Apple's "light-asset" AI strategy of leasing computing power rather than building infrastructure, contrasting with heavy capex plans by rivals.

Meta Platforms (META.US) and BlackRock (BLK.US) announced a joint venture to develop a data center campus in El Paso, Texas, with a total development cost of approximately $140 billion. BlackRock's funds will hold an 80% stake, while Meta retains 20%. The project is backed by a $12.5 billion debt financing deal tailored for the data center.

Amazon (AMZN.US) is overhauling its AI strategy, phasing out several in-house developed foundation models. The company is shifting focus away from models for text, images, and video to concentrate engineering talent and computing resources on its highest-priority strategic projects. Models being wound down include the high-end Premier and Omni models, video generation model Reel, and image generator Canvas.

Nvidia (NVDA.US) has reportedly signed a 15-year lease for a data center in Texas valued at $19.6 billion, with the total potential value reaching $50 billion if all renewal options are exercised. The facility, developed by Hut 8 (HUT.US), is designed for gigawatt-scale AI infrastructure.

Unilever (UL.US) posted its best quarterly sales growth in over a decade, driven by strong demand in key markets like India, Indonesia, and Latin America. The company raised its full-year sales growth forecast to 3%, up from 2%.

United Parcel Service (UPS.US) raised its full-year revenue forecast to approximately $912 billion, up from $897 billion, as it focuses on higher-margin business. Q2 revenue rose 7.5% to $22.8 billion, beating estimates.

Barclays (BCS.US) reported Q2 pre-tax profit of £3.3 billion, driven by a 44% surge in equities revenue. However, the results lagged behind US peers, and the bank's plan to spend up to £300 million on technology simplification pressured its stock, which fell over 6% pre-market.

Coca-Cola (KO.US) reported Q2 profit and revenue that beat expectations, boosted by higher concentrate sales, pricing, and mix. The company raised its full-year adjusted earnings per share growth forecast to 9%-10%.

Upcoming Economic Data and Events

20:15: US weekly ADP employment change for July 11
20:30: US June wholesale inventories monthly rate (preliminary)
22:00: US July Conference Board consumer confidence index
04:30 (next day): US weekly API crude oil stock change

Earnings Reports

Wednesday (early hours): SK hynix, Seagate Technology (STX.US), NXP Semiconductors (NXPI.US), Visa (V.US), Ford Motor (F.US)
Wednesday (pre-market): Nomura (NMR.US), Deutsche Bank (DB.US), UBS (DB.US), New Oriental (EDU.US), Procter & Gamble (PG.US), United Microelectronics (UMC.US)