Key facts
- U.S. and Iran tensions have escalated, with the U.S. reimposing a naval blockade on Iran's ports.
- Asian stock markets, particularly in the semiconductor sector, are experiencing significant volatility.
- Crude oil prices have risen but remain contained, with traders betting on de-escalation.
- China's economic growth in Q2 was 4.3%, below market expectations.
- U.S. core inflation eased to 2.6% year-over-year in June.
Asian stocks continued their decline this week, with concerns about the durability of AI capital expenditure outlays impacting chipmakers like Taiwan's TSMC. The volatility in Asia is also attributed to the unwinding of leveraged positions, particularly evident in South Korea's KOSPI index, which tumbled 6% on Thursday. In response, South Korea's financial regulator announced measures to control leveraged ETFs.
In the Middle East, tensions between the U.S. and Iran have escalated, with President Donald Trump notifying Congress of the formal resumption of conflict. The U.S. military has conducted multiple nights of attacks and reimposed a naval blockade on Iran's ports following Iran's closure of the Strait of Hormuz. Iran has also struck U.S. military bases, with its top negotiator stating the two nations are in an "essential and existential war."
Despite the geopolitical flare-up, crude oil prices have remained relatively contained, with Brent hovering around $85 a barrel. Energy traders appear to be betting on a swift de-escalation, though this may be a miscalculation given lower global oil inventories and potential impacts on alternative transit routes like the Red Sea.
On Wall Street, U.S. big banks reported strong second-quarter earnings, boosted by mega-IPOs and market volatility. However, SpaceX saw its share price briefly fall below its IPO price for the first time.
China's economy grew by 4.3% in the second quarter, below expectations, despite exports and imports topping forecasts. Domestic consumption and the property sector remain weak.
Positive news emerged on the U.S. inflation front, with core price increases coming in lower than expected at 2.6% year-over-year. However, Federal Reserve Chair Kevin Warsh cautioned that the fight against inflation is far from over, especially with potential oil price increases due to Middle East conflict.